Lecture 6 - Types Of Organisation Flashcards
Sole P - characteristics
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
Sole proprietorship - financial activities
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
SP - financial reporting
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
Partnership - Characteristics
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
Partnership - financial activities
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
Partnership - essential to draft partnership agreement
Capital contributed
Share of profits
Without agreement, Partnership Act 1890 applies
Partnership - financial reporting
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
Limited liability company
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
What do limited liability company need to do?
Need to register with Companies House
Private limited liability company or
Public limited liability company
Pay corporation taxes, not personal income taxes
Private company
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
Public company
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
Limited liability - financial reporting
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
Not for profit organisation
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
Not for profit organisations - accounting records
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
Standards for these organisations
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