I suggest partnership as the most suitableownership for their new business. Following differences between strengths andweakness of partnership and limited company will be prove that partnership isthe best option for Mr. Fernando and Mr. Perera for their new business. Apartnership is commonly a business structure that formed by two or more peoplewho expect to form business together. Sometimes partnership can be beginswithin two or more people who have a common business idea and skills that theyaim to make a successful business.
In some situations partnership will be themost logical option. Compare to other business structure it will be a goodchoice of legal structure to carry on a small business with a low turnover.The most important thing is partners canshare their profits, liabilities and decision making among their partners. In apartnership partners will collect funds by their initial capital. They cancollect more money by more partners and it will help to the business growth andthe flexibility of the business. It also means more profits which will equallyshare between partners. In a partnership partners can share theirresponsibilities according to their skills.
It will help to achieve successfuloutcomes from the business. More partners means more ideas for solving problemsand can help each other when they need. Other important thing is this kind ofbusiness can easily form, manage and maintain. There are less regulations thancompanies and partners can continue their business under agreements of partnerswithout any interference by shareholders like limited company.Thus we can point out many strength existwithin partnership. Likewise strengths, there are some weaknesses that partnerscan be face during their business activities. As partners it is necessary toagree with things that are being done in such a situation and there are lessfreedom to take decisions as an individual, otherwise it leads to disagreementsbetween partners and also each partner liable for actions by other partners.
Last one is unlimited liabilities which bare by partners (Example: Financialrisk). Limited company is a company whose liabilityis limited. The main strength of the limited company is the financial security.Shareholders are the only people who liable for debt. This reason will give acomfortable condition to the investors in the company. When consider about theweaknesses of limited company start-up cost is comparatively high than thepartnership. And also there are complex rules in accounts than partnership.
Inlimited companies’ shareholders can’t raise the capital by sale of shares.Sometimes disputes will arise between director and shareholder as their ideasof what is best for the company vary. When consider about the above mentionedstrengths and weakness of partnership and limited company it seems like it isbetter to form the new business as partnership.
Well formation according to theprocedures and rules of suggested business structure will give successfuloutcome to those two partners without any doubt. Questionno 2:Differences between financial andmanagement accounting Differences of the management and financialaccounting can be divided under main 3 areas. Those are primary users (externalvs. internal users), purpose (generalizes vs. specialized information), andfocus (historical vs. future perspective).
1. Primaryusers ( external vs. internal users)Financialaccounting is meant for those external to theorganization, who need to get a view inside. These people are externals to theorganization, · Investors · Suppliers, customers · Employees, unions · Creditors · Tax authorities, other regulators Managementaccounting is meant for those internal to theorganization, who need information to achieve organization goals.
Managementaccounting provide some other information to following peoples,· CEO· Department/ division managers · General managers 2. Purpose ( generalized vs.specialized information) Financialaccounting use the same three or four financialstatement to meet the need of a wide variety of users. Thus, the information isgeneralized and aggregated and always follows a similar format. It is also,normally, public information and removes some of the proprietary details andspecifics.
Those financial statements are,· Income statement· Balance sheet · Statement of cash flows · Statement of retained earnings Managementaccounting reports are normally only produced tomeet the needs of a specific decision maker. Thus the reports are specializedwith a level of details to make a specific decision. Management accountingreports are also normally private so nothing need to be concealed. 3. Focus (historical vs. futureperspective)Financialaccounting is based on historical transactions.
Fortransactions to be recorded within a financial accounting system they must havebeen based on past events. Financial accounting is primarily backward – looking/ historical.Managementaccounting while still sometimes using historicaldata, is meant to be used for decision making for the Future. Many managementaccounting reports have future orientated data within them, for example withinbudgets. Management accounting is far more forward looking than financialaccounting.