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    Business Structures PDF

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    rajitha
    The document discusses different types of business entities for financial reporting purposes: sole trader, partnership, private company, public company, and trust. [1] Sole trader financial reporting is the simplest as the owner's personal finances are reported. [2] Partnership reporting is also simple but must account for multiple owners. [3] Private company reporting is more complex due to additional rules, but not as complex as public companies. [4] Public companies have the most complex reporting due to compliance with regulations for shareholders. [5] Trust reporting can range from simple to complex depending on the trustee's responsibilities.

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    Business Structures PDF

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    rajitha
    38 views10 pages
    The document discusses different types of business entities for financial reporting purposes: sole trader, partnership, private company, public company, and trust. [1] Sole trader financial reporting is the simplest as the owner's personal finances are reported. [2] Partnership reporting is also simple but must account for multiple owners. [3] Private company reporting is more complex due to additional rules, but not as complex as public companies. [4] Public companies have the most complex reporting due to compliance with regulations for shareholders. [5] Trust reporting can range from simple to complex depending on the trustee's responsibilities.

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    The document discusses different types of business entities for financial reporting purposes: sole trader, partnership, private company, public company, and trust. [1] Sole trader financial reporting is the simplest as the owner's personal finances are reported. [2] Partnership reporting is also simple but must account for multiple owners. [3] Private company reporting is more complex due to additional rules, but not as complex as public companies. [4] Public companies have the most complex reporting due to compliance with regulations for shareholders. [5] Trust reporting can range from simple to complex depending on the trustee's responsibilities.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    38 views10 pages

    Business Structures PDF

    Uploaded by

    rajitha
    The document discusses different types of business entities for financial reporting purposes: sole trader, partnership, private company, public company, and trust. [1] Sole trader financial reporting is the simplest as the owner's personal finances are reported. [2] Partnership reporting is also simple but must account for multiple owners. [3] Private company reporting is more complex due to additional rules, but not as complex as public companies. [4] Public companies have the most complex reporting due to compliance with regulations for shareholders. [5] Trust reporting can range from simple to complex depending on the trustee's responsibilities.

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    of 10

    CA BUSINESS SCHOOL

    EXECUTIVE DIPLOMA IN BUSINESS AND ACCOUNTING

    SEMESTER 1: Preparation of Financial Statements

    Business Structures

    M B G Wimalarathna
    (ACA, ACMA, ACIM, SAT, ACPM)(MBA–PIM/USJ)
    Introduction
    As we discussed in chapter 01, every entity must identify & record
    business transactions for the given period and importantly such
    transaction (which are identified and recorded) should belongs to
    the given entity.

    An entity refers collection (pool) of interrelated group of people


    acting towards achieving common goal(s) and will be either one of
    the following;
     Sole Trader
     Partnership
     Company
     Non-profit motive organization
     Trust

    Period should be either a calendar year or an assessment year for local company.
    Sole Trader/Sole Proprietorship
    A Sole trader is a business owned by a person/an individual and
    control/manage by himself.

    Key features:
     Owner & controller is a same individual.
     Not a legal entity.
     Formation is not complex.
     Need to obtain BRN & TIN.
     For tax purpose, entity’s income is treated as individual’s income
    (owner)
    Advantages Disadvantages
    - Easy & inexpensive to form. - Unlimited liability since not
    - Not govern under strict rules & treated as separate legal entity.
    regulations. - Limited skills & capabilities.
    - Total autonomy over business - Cease the business when owner
    decisions. experience incapability.
    - Enjoy entire benefits. - Bear entire loss and liabilities.
    - Not charge tax on business profit.
    Partnership
    A Partnership is an association of two or more persons or entities that carry on business as
    partners with the common motive of earning profit. (how partnership differs from JV)
    A partnership could be form verbally, impliedly or in writing. Most of the partnerships carry on
    business in line with the provisions made in Partnership Agreement.
    Note: Key duties & responsibilities of each partners, contribution for capital, sharing of
    profit/loss, payment of salaries are generally included in a partnership agreement.
    Key features;
     Involvement of two or more individuals/parties.
     Profit motive.
     Common goal.
     Not a legal entity.
     Easy to form.
     BRN & TIN to be obtain.
    Advantages Disadvantages
    - Easy to form. - Unlimited liability
    - Not involvement of much rules & - Limited life time.
    regulations. - Disputes/Disagreement between each
    - Combination of skills & capabilities. partners.
    - Profit Motive. - Partners act as a mutual agency.
    - Work towards a common goal. - Some decisions couldn’t be implemented.
    Company
    A Company is a widely available business entity which treated as an
    independent legal entity.
    Legal entity - Entity (company) treated as a separate unit/person (legal)
    from the people who own, control and manage it.
    Generally, Shareholders (ordinary) are the owners of a company
    (public) whom received dividends as their compensation.
    Registration of a company generally involve complex procedures than
    sole trader and partnership.
    Initially, each individuals who are willing to act as shareholders,
    directors and company secretary must register at ROC and then
    simultaneously CRN can obtained from the ROC once register the
    company.

    Note: Most of the companies governed & controlled by the companies act. Further, company
    must adhere to the rules & regulations laid down by ROC/SEC & LKASs.
    Types of Companies
    Following major types of companies widely available in the business
    world.
     Proprietary companies.
     Companies limited by shares.
     Companies limited by guarantee.
     No-liability companies.
     Unlimited companies.

    Proprietary/Private Company
    Most common form of companies which consists 1-50 shareholders
    and owned by the family members (generally). Essentially,
    proprietary company cannot issue shares to the public (can do
    private placement) but treated as a legal entity.
    Companies Limited by Shares
    These companies treated as public companies in which shares being
    issued to the public. At least 03 directors and 01 shareholder require to
    establish and liability of the shareholders limited to the value of shares
    being purchased/contributed.

    Note: Total share capital may consists of ordinary & preference shares.

    Companies Limited by Guarantee


    Consists same features as limited by shares except that shareholders
    will be liable to the amount agreed & guaranteed at the beginning but
    not for the value of shares acquired.
    Advantages Disadvantages
    - Limited Liability - Considerable amount of time & cost
    - Ability to raise funds/capital quickly involvement to establish
    - Recognition/reputation - Need to comply with rules &
    - Law tax rate compared to sole regulations
    trader/partnership - Responsibility carries towards public
    - Operational complexities
    No-Liability Companies
    As name implied, shareholders are not liable for any debt of the
    company due to the risk & uncertainty involve in operations and
    revenue sources.

    Unlimited Company
    Members/Shareholders of the company hold unlimited liability over
    company debts.

    Non-Profit Motive Organization


    An organization established with the main objective of maintaining
    healthy education, social, cultural level in the society as a whole.

    Since there is no profit motive, operations will be carried out with


    the assistance of various individuals and entities.

    E.g.: UNA/WHO/Red Cross Society/Lions Club


    Trust
    A trust is a collection of individual investors. A trustee is an
    entity/person act as an administrator for the pool of money & other
    assets of investors who invested together (outside) and distribute
    benefits among all such investors.

    Family
    Trust
    Unit
    Advantages Disadvantages
    - Tax minimization - Additional complex laws &
    - Limited liability regulations to be follow
    - Easy to form - Depend on the trustee
    - Relatively not highly regulated - Not much attractive in profit
    motive
    Financial Reporting
    Financial reporting of each of the above entities vary based on
    the applicability of various rules & regulations.

    Sole Trader (too simple)


    Partnership (simple)
    Financial Reporting in Private Company (complex)
    Public Company (too complex)
    Trust (simple ~ complex)

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