Proprietorship, liability are the main two disadvantages.

Proprietorship, Partnership and Limited
Company are the most common forms of business organizational structures.
Proprietorship form of organization is used when there is a single owner of the
business. Although there are two members in this restaurant business. So, when
the number of owners more than 1, Partnership and Limited Company form of
organization are the most preferred. Before digging deep into which organization
is best for your business lets first analyze the difference between Partnership
and Limited Company.

Partnership

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Strength of Partnership

An advantage of a partnership compared to a limited company
is that you can set up a partnership with any starting capital.

§  Your business is easy to establish and
start-up costs are low

§  Less bureaucracy and a more flexible structure.

§  Partners  business affairs are private

§  Two heads or more
are better than one

§  You will  have greater borrowing capacity

§  There is opportunity for income
splitting

§  It is easy to change your legal
structure later if circumstances change.

Weakness of Partnership

Level of taxation and the liability
are the main two disadvantages.

§  The liability of the partners for the
debts of the business is unlimited.

§  Each partner is an agent of the
partnership and is liable for actions by other partners.

§  Family and friends go into business together it can
obviously present some problems.

§  There is a risk of disagreements among partners and
the management.

 

 

 

 

 

 

Limited Company

A Limited company form of organization is preferred whose
ownership is in the hands of shareholders who appoint directors to report at
meetings, these meeting are often annual. The directors and managers are
responsible for the day to day running of the business and then report back to
the shareholders.

 

Strength of Limited Company

§  Shareholders liability is limited.

§  When selling shares to another party it
is easy to transfer ownership.

§  Can trade anywhere.

§  Taxation rates can be more favorable

§  Shareholders (often family members)
can be employed by the company.

§  You will have access to a wider
capital and skills base.

 

Weakness of Limited Company

§ 
Your
financial affairs are public.

§ 
If
directors fail to meet their legal obligations, they may be held personally
liable for the company’s debts.

§ 
Expensive
to establish, maintain and wind up

§ 
Compliance
requirements can be complex.

 

After the analyzed, it is recommended
that to start Restaurant business as a Partnership. Because Partnership business
is an easy to setting up process, less cost of running and there are not compliance
requirements as well. So Fernando and Perera can easily start a Restaurant
Business. The registration is no need. However
it’s usually recommended that a partnership agreement is made, which explains
the business structure, legalities and each partner’s responsibilities.

 

 

 

Question
2

 

Financial Accounting

Financial accounting is concerned
with the practices, principles, and systems to present the financial health of
an organization internal and external stakeholders. Balance sheet, income
statement, statement of cash flows of these statements report the entity’s past
activities.

Management
Accounting

Management
accounting is used by managers to make business decisions that affect the
entity’s future profits and cash flows. It is information to aid to decision
for the future. Product costing, Cost accumulation,
Process costing, Activity based costing these topics are coved in Management
accounting.

Financial accounting and management accounting are totally
different from each other.

Difference between Financial Accounting and Management
Accounting

Point of the difference

Financial Accounting

Management Accounting

Purpose

Useful
both of internal purpose as well as stockholders to evaluate the financial
performance of the company

Useful
mostly internal management for making decisions.

Frequency

Usually prepared
as per statutory requirements-quarterly, six monthly, yearly statement.

No fixed interval
at which the management accounts should be prepared, mostly prepared as per
management requirements.

Outputs

Reports
consist of profit and loss statements, balance sheet income statement, and cash
flow statement.

Reports
are the monthly, weekly or yearly analysis.