suitable business type for a restaurant is bound with certain factors. In the
given question, it clearly ask the opinion about limited company and
Limited company is
a legal entity which is separated from its owners and have an interminable
existence, owned by shareholders and raising capital by issuing shares.
Partnership is an
association of two or more people who have common goals to attain profits.
In order to
provide recommendations for Fernando &Perera, strength and weakness of
Partnership and Limited Company should be analysed.
In comparison with partnership,
one of the most important advantage of Limited Company is the legal
personality, the name of the restaurant can be used in front of the Law, to
acquire assets and contracts for the restaurant.
The members of the company have
limited liability for company debts. Shareholders who owned the
restaurant are not personally liable.
Another realizable strength is interminable
existence. Any death of a member or bankruptcy doesn’t count any operation
of the restaurant.
When companies issue higher
number of shares, higher rate of capital growth can be achieved.
Limited company shows greater
advantage when coming to tax calculations. Because it shows higher
flexibility which make easier for managers in decision making as well as to
achieve company goals.
In the introductory stage,
company will not be able to raise capital as required because, normally at the
beginning it may show poor financial strength .This can be taken as a
main disadvantage under the limited company.
Compared to partnership
business, limited companies shows higher rules and regulation requirements
in their legal structure.
The ownership as well as
profits need to be shared among all the members.
Limited companies need to maintain
accounts which is complicated compared to other business types. They need to
spend more financial expenses
Partnership business are easy
to begin. One of the main cause is due to low regulations. Fernando &
Perera can easily start the restaurant
Apart from Fernando &
Perera themselves, they can utilize other partners who have different
knowledge levels, abilities and experiences.
Responsibility when comes to
cover the liability and losses can be shared among partners.
In comparison to limited
company Fernando & Perera can generate more capital can by involving more
partners investing in the company which will cause to expand the business
and to maximize profits.
Ø Partnership business will cause to be terminate if Fernando or
Perera or any other partner dies, mentally disordered or falling to a
bankruptcy. The existence of the partnership is instable.
Ø Fernando & Perera will have to bear the liability even by
selling their personal properties which become quite a risk.
Ø One of the main disadvantage under the partnership is non legal
personality. Partners and the company are not to be treated as separate entities.
Ø Partners have to share the profit among partners .
Ø When expanding business for different reasons, more partners
involved with different opinions tend to increase disagreements
My recommendation for Fernando & Perera
is to start the restaurant as a partnership, taking easy to commence advantage
gain more capital and expand it slowly as a Limited company where the company
can enjoy legal personality, interminable existence and limited liability.
between Financial accounting & Management accounting
Financial accounting is the type of
accounting which provide financial details of monetary transactions happened
during the period of a business according to the accounting standards and
principles. It includes income statements, statement of financial position,
cash flows etc. Management accounting is prepared to provide information to
managers to evaluate and manage day to day operations of the entity including monetary and non-monetary transaction.
The main objective of financial accounting
is to provide useful information to its
stakeholders such as Mangers, suppliers, customers government etc. it is a compulsory document prepared annually,
whereas management accounting is prepared for
internal use especially
for managers to take decisions regarding optimizing use of resources, imposing
new strategies, managing business activity. This document is not compulsory and is not prepared annual basis.