Unit 14Forms of Business
Unit 14 Forms of Business
Forms of businessBusinessSingleorganizationsproprietorshipPartnershipCorporationsFor accounting purposes, all three forms are separatefromtheirowners.Legally,only corporations are separate from their owners
Forms of business Corporations Single proprietorship Partnership Business organizations • For accounting purposes, all three forms are separate from their owners. • Legally, only corporations are separate from their owners
于卡.Single ProprietorshipDefinitionAsingleproprietorship is an unincorporatedbusiness owned by a person and oftenmanaged by the same person. No legal formalities are necessary to organizesuch businesses and usually businessoperations can begin with only a limitedinvestment
Ⅰ. Single Proprietorship Definition • A single proprietorship is an unincorporated business owned by a person and often managed by the same person. • No legal formalities are necessary to organize such businesses and usually business operations can begin with only a limited investment
三下.single ProprietorshipFeaturesThe owner is solely responsible for all debtsof the business.> The business is a separate entity from theowner. Thus, single proprietor must keep thefinancial activities of the business from theirpersonal financial activities.> Net accumulated investment is not reguiredto be distinguished from profit earned. It is theowner's option to invest in the business,withdraw from the business, and distributeprofit
Features ➢ The owner is solely responsible for all debts of the business. ➢ The business is a separate entity from the owner. Thus, single proprietor must keep the financial activities of the business from their personal financial activities. ➢ Net accumulated investment is not required to be distinguished from profit earned. It is the owner’s option to invest in the business, withdraw from the business, and distribute profit. Ⅰ. Single Proprietorship
卡.Single ProprietorshipAdvantageSole proprietorship is easy to start up, subject tofewer regulations relative to other types ofbusinesses, the owner has full autonomy with regardtobusinessdecisionsAnother advantage is that one takes all the profits ofthe business.Disadvantage> A business organized as a sole trader will likely havea hard time raising capital since it has to make up forall the business's funds.The owner of the business has unlimited liability asheisresponsibleforthebusiness'sdebtsbecausehehascontroloverthebusiness
Advantage ➢ Sole proprietorship is easy to start up, subject to fewer regulations relative to other types of businesses, the owner has full autonomy with regard to business decisions. ➢ Another advantage is that one takes all the profits of the business. Ⅰ. Single Proprietorship Disadvantage ➢ A business organized as a sole trader will likely have a hard time raising capital since it has to make up for all the business's funds. ➢ The owner of the business has unlimited liability as he is responsible for the business's debts because he has control over the business
三卡.single ProprietorshipEquity accounts> Capital account should be opened.It is not necessary to reclassify equity inthe single proprietorship because there areno legal restrictions on the owner'sinvestment or withdrawals.There is no need to distinguish initial orcapital from subsequent investmentAll final changes of the owner's equityshould be reflected in capital account
Equity accounts ➢ Capital account should be opened. It is not necessary to reclassify equity in the single proprietorship because there are no legal restrictions on the owner’s investment or withdrawals. There is no need to distinguish initial or capital from subsequent investment. All final changes of the owner’s equity should be reflected in capital account. Ⅰ. Single Proprietorship
三卡.single ProprietorshipWithdrawal as a temporary should demaintained.Its debit side records the payment for theproprietor's personal activities, withdrawal ofcash or other assets by the proprietor forpersonal use.Its credit side records cash and cashequivalents which the owner deposit in theproprietorship temporarily
➢ Withdrawal as a temporary should de maintained. Its debit side records the payment for the proprietor’s personal activities, withdrawal of cash or other assets by the proprietor for personal use. Its credit side records cash and cash equivalents which the owner deposit in the proprietorship temporarily. Ⅰ. Single Proprietorship
I. PartnershipDefinitionApartnership is an association of two ormore persons as co-owners to carry on abusiness for profitIt is widely used in some mid-size or smallbusinesses which only need capital financedby several persons, or small-scaledprofessional firm such as CPA firm, lawyerfirm, and doctor joint-clinic
Ⅱ. Partnership Definition • A partnership is an association of two or more persons as co-owners to carry on a business for profit. • It is widely used in some mid-size or small businesses which only need capital financed by several persons, or small-scaled professional firm such as CPA firm, lawyer firm, and doctor joint-clinic
II. PartnershipDefinitionThe formation and operation of a partnershipare based on the cooperation and trustbetween partners and partnership agreementcontracted voluntarily by partners.: Partnership agreement serves as a basis forthe formation, operation, and liguidation of apartnership and should be written to avoidany misunderstandings or disagreements.: However, partnership can be formed withouta written agreement
Definition • The formation and operation of a partnership are based on the cooperation and trust between partners and partnership agreement contracted voluntarily by partners. • Partnership agreement serves as a basis for the formation, operation, and liquidation of a partnership and should be written to avoid any misunderstandings or disagreements. • However, partnership can be formed without a written agreement. Ⅱ. Partnership
II. PartnershipFeatures(1) Expanding financing channels and ease toformationApartnership expands channels to raise funds andcombines special skills of each partner which helpimprove decision-making and management.> (2) Higher investment risk and limited equity transferAs an investor of a partnership, is responsible for allthe debts of the firm regardless of how much heinvested in the firm.Apartner has the right by law to transfer his equitythe transfer is limited and must be agreed upon byotherpartners
Features ➢ (1) Expanding financing channels and ease to formation A partnership expands channels to raise funds and combines special skills of each partner which help improve decision-making and management. ➢ (2) Higher investment risk and limited equity transfer As an investor of a partnership, is responsible for all the debts of the firm regardless of how much he invested in the firm. A partner has the right by law to transfer his equity, the transfer is limited and must be agreed upon by other partners. Ⅱ. Partnership