Strength and Weaknesses of Partnership and
To start up a restaurant is indeed an intimidating task as it
has to create a menu, pick up all the goods required and handle the legal side.
Due to two people involved, Sole proprietorship needs to be stroked off and so
is Corporation due to no large company or group of companies so Fernando and
Perera is left with either a partnership or a Limited Company(LC) for the start-up
and Weaknesses of Partnership
A partnership is a business organisation where either two or
more people pool money and skills and accordingly share profits and liabilities
of the business as per the partnership agreement. Two heads/more are better
than one. More partners, more money as start-up capital, thereby easy to establish,
high borrowing capacity and profit which is equally shared. The
responsibilities of running the business can be split up and will benefit from
a combination of skills due to more brains and will lead to cost effectiveness.
As decision-making power is shared, more ideas. Less strictly regulated and
thereby easy to change the legal structure as far as partners can agree.
friction among partners due to different ideas on how the business needs to
run. Less freedom as partners need to agree on things they don’t want to due to
a jointly run, yet partnership is comparatively more flexible than LC.
Partnership have a limited life as it may end up in a death of a partner or a
withdrawal or due to a dramatic split up as decisions are shared, thereby a
limitation in becoming a large business. One major problem is unlimited
liability. Since, it’s ‘jointly’ each partner is responsible/liable for their
share as well as all debts. Inconsistency caused due to equally sharing profits
as equal efforts are not put by partners.
and Weaknesses of Limited Company
Limited company (LC) is a form of
incorporation where liability is limited whose share capital is restricted by
its memorandum of association. Main benefits in running a LC is the limited
liability, meaning only the shareholders are liable for the debts according to
their investment levels where no personal liability. LC is preferred by
investors due to the high financial security. Even after a death of a member,
the company will exist by ensuring the job security of the employees as LC is a
separate legal entity. More favourable taxation rates as
they are quite lower comparatively.
LC is costly to
establish and manage due to its complicated rules and regulations and also more
capital that is hard to raise is required. Accounts are complex and the
accountancy fee is relatively high and consumes time. Due to the large nature
of business, LC is costly. Has less privacy as the financial affairs are public
and also less flexibility due to losses made by a company are used by the
It’s impossible to tell how the business would do in the
future. As a ‘start-up’, would look on the short term first, meaning the
advantages of starting up and running. The recommended would be a partnership
at the beginning due to easy start up, more capital as borrowing capacity high,
simply its flexibility is high but partners need to be aware of risks before
starting, like unlimited liability but a risk needs to be taken to encounter
returns, either to start-up smoothly by having an unlimited liability in future
or barely start-up with a limited liability. When the partnership is at growth,
makes a difference of structure, it can be easily converted to a Limited
company. Then, recommendation is to change to a limited company in the future
when the business is at success. This way the company has more money and more
safety to personal assets and accidents wouldn’t stop them following their
dream of building a successful restaurant.
Main Distinctions between Financial Accounting
and Management Accounting
For External Users
For Internal Users
Evaluates financial position
In FA, financial
information is needed for the external users to evaluate the financial position
of the organisation. Financial reports are prepared according to the historical
information and are concerned about the results achieved, so it’s historically
oriented. These reports are usually prepared to the statutory requirements and issued
at the end of the accounting period.
In MA, financial
information is used by the internal users for decision making where mostly
deals with estimates than verifiable facts and may address budgets and forecast
to have future orientation. Here, the management accounts need to be prepared
as per the management requirement unlike in FA and the reports are
issued more frequently so managers can look through them right away.