Lecture 6 - Types Of Organisation Flashcards

1
Q

Sole P - characteristics

A

Sole ownership
Easy to set up and run
Does not have to be registered with the Companies House
Owner needs to be registered as self employed with HM revenue and customs
No separation between owner and business

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2
Q

Sole proprietorship - financial activities

A

Self funded - raise capital through own savings and assets, borrowings from friends and family
Not allowed to issue shares or bonds to the public
Enjoy all profits, bear all losses
Personally liability for all liabilities - unlimited

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3
Q

SP - financial reporting

A

Accounting records are simple and straightforward

  • basic income statement to show revenues and expenses, profits and losses
  • there is no need to show assets and liabilities
  • main purpose is to determine personal income tax payable to HMRC
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4
Q

Partnership - Characteristics

A

Between two and 20 members for the same objective
Simple and easy to set up - extension to sole proprietorship
Each partner is the owner
Partners need to register as self-employed with HMRC
Partnership does not have to register with the companies House
No separation between business and owners

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5
Q

Partnership - financial activities

A

Partners raise capital via own savings and assets, borrowings from family and friends
Not allowed to issue shares or bonds to the public
Partners to share all profits and losses
Business is not separated from owners - partners are personally liable for all liabilities

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6
Q

Partnership - essential to draft partnership agreement

A

Capital contributed
Share of profits
Without agreement, Partnership Act 1890 applies

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7
Q

Partnership - financial reporting

A

Follow the entity concept
Keep basic income statement to show revenues, expenses, profits and losses
Main purpose is for partners income taxes to HMRC
Statement of financial position and cash flow statement are usually not needed

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8
Q

Limited liability company

A

Has legal personality - treated as an entity
Independent from its owners

Legal personality?
Company enters into contracts with suppliers, creditors, customers (contracts under the company’s name, not the owners)
Company own assets, generates liabilities, incurs expenses and generates revenues
Owners have limited liabilities - limited to the amount invested

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9
Q

What do limited liability company need to do?

A

Need to register with Companies House
Private limited liability company or
Public limited liability company

Pay corporation taxes, not personal income taxes

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10
Q

Private company

A

Owners and managers are usually the same people
Company’s name should have word limited to ltd
Not allowed to raise capital through selling shares/bonds to public
Only issue shares to owners
E.g Harvey Nichols

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11
Q

Public company

A

Owners and managers are different people
Company’s name should have the word public limited company or plc
Able to raise capital by issuing shares/bonds to the public
Shares are traded on capital markets
E.g Tesco plc

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12
Q

Limited liability - financial reporting

A

Group accounts of all listed companies - formats of financial statements are to follow the International Accounting Standard Board
All other companies are to follow either IASB or Companies Act2006
CA 2006: all limited liability companies must prepare a business review
Fair review of the business
Uncertainties in the future
Listed companies need also to include environmental matters, info on employees, social and community matters

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13
Q

Not for profit organisation

A
Non profit-making organisation 
Include: 
Government agencies 
Uk border agency 
Local councils 
Public funded bodies - NHS 
Privately run organisations 
- charitable organisations - national society for cancer relief 
Clubs 
Churches
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14
Q

Not for profit organisations - accounting records

A

Charities Act requires charities to keep proper accounting records
They must be sufficiently detailed to show and explain the transactions by the charity.
- record assets and liability of the charity
- disclose the financial position of the charity at any time
- produce a statement of account in line with the Regulations

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15
Q

Standards for these organisations

A

Profit-making organisations
- accounting standards are set by IASB, FASB or FRC

Not-for-profit organisations

  • set by International Public Sector Accounting Standards Board (IPSAB)
  • follow closely the standards set by IASB
  • OSCR - office of the Scottish Charity Regulator
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16
Q

Third Sector

A

Organisations that are neither public sector nor private sector
Voluntary and community organisations
They are:
Independent of government
Value driven
Reinvest any surpluses generated in the pursuit of their goals

17
Q

Third sector organisations take these legal forms

A

Simple associations of People with shared values and objectives
Company status but with a not for personal profit approach
Community interest companies
Industrial and provident societies or co-operatives
Charitable status

18
Q

Office of the Scottish Charity Regulator

A

Charities can prepare their accounts in one of two ways:
Receipts and Payments -
Simplest form of accounting
Summary of a monies received and paid via the bank and in cash in the financial year.
Closing statement of balances

Accrued

  • Allocate the costs or income of a particular activity according to when the liability is incurred or when there is entitlement or certainty about income. This is not necessarily the date on which money is received or paid out.
  • Fully accrued accounts must be prepared in accordance with the methods and principles of the Accounting and Reporting by charities
19
Q

External scrutiny of charity accounts - 2 forms

A

1) Independent examination

2) Audit

20
Q

Independent examination

A

Less rigours than an audit
Offers an assurance that nothing has been found that needs to be brought to the attention of readers
Independent examiner should be someone who trustees reasonably believe to have the requisite ability and practical experience to carry out a competent examination of the accounts.

21
Q

Audit

A

Provides reasonable assurance that the accounts are free from material misstatement whether caused by fraud or other irregularity or error
Results in a positive expression of a professional opinion based on the audit
Must be performed by a registered person or body recognised as authorised to provide an audit opinion
Registered auditor must comply with the UK Auditing Practices Board’s ethical standards for auditors and International Standards on Auditing UK