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DIFFERENCES and SIMILARITIES while running business as a sole trader, as a partnership and as a private limited liability company.
Well there are some differences and similarities while running business in different foams. In the sole trader ship only one person works so he is the owner, employee, financer, decision taker of all matters. While in partnership two or more than two persons own business. So before take any decision the partners should discuss about good and bad things then decision will be taken. In PPL share holders are the owners and they elect the directors among them to run a business. So if any important decision should be taken they arrange a board meeting and in a meeting they ask for the votes of shareholders and then decision will be taken on the basis of the result of the votes.
In the sole trader ship business one person own the business so liability is unlimited because only the owner take money in the business so he will own the profit but in the case of loss or heavy loss the owner has to sell his own private property to pay debts. So it is the big risk factor. While in the partnership the responsibility is same as the sole trader but it will be divided all the partners. So if there is a heavy loss partners private properties can be in danger. But in the PPL this point of responsibility is totally different from above two. Liability is limited. In PPL shareholder's risk is only by the amount he invests in the company. If company will make a loss he will lose his money he invest nothing more than that. I t is the good side of PLLC.
In sole trader ship decision making process is quick because owner has to take all decisions so it does take less time compare to partnership and PLLC. While in partnership decision making is quick but not quick as sole trader ship. Because two or more partners has to decide so it does take some time or sometime disagreement does effect. In PLLC decision making process is slowest compare to above two. Because directors have to ask all share holders before they take any decisions. So disagreement does effect in delay of decision making process.
In sole trader ship there is only one person who brings capital in it. So finance could be less compare to other two businesses. Where in partnership two or more partners bring finance in business. So it could be not as much but as enough to expand the business. While in PPL the amount of the finance might be comparatively higher as there are so many shareholders in who bring their money in a business.
2.2) Discuss the merits and demerits of partnership, PLLC and sole trader ship business.
Advantages of sole trader ship business are it is the easiest foam to control, least expensive to run means need s less money than Partnership and PLLC. The owner will own the profit straight. Tax benefits are the main merit. Instead of showing the business income if the owner will show that income as a personal income he will have to pay less tax rather than business income. Here it is easy to transfer ownership when owner wants. Disadvantages are it does have unlimited liability to run proprietorship business. In the case of loss owner has to sell his own property to pay debt. It is very difficult to raise fund for the owner from his savings if he wants to expand the business. Life of the sole trader ship is limited if the owner dies the business comes to an end.
Merits of Partnership are its easy to establish and run with more finance because in the business all partners will bring their finance. Means it is easier to raise fund here. Due to more partners business will get full benefit of the partners own skills, ability to run business, strategy, get new ideas to expand business. Demerits are again unlimited liability partners have risk on their property in the case of heavy loss. Conflicts may occur sometime while decision making because some might be disagree. Confidentiality may be the demerits because due to some partners some important information might be leaked.
Merits of PPLC are it is beneficial for shareholders because they are liable for the amount they invest. Means the shareholders have limited liability here. Transfer of ownership is easy by just by selling shares. It's easy to raise fund for business by issuing more shares. Demerits are it is not as easy as the above business foams to establish the business. Cost of running business is higher. Privacy can't be maintained because company has to inform all shareholders. Company has to pay tax as 'business is separate entity'. It may be delay in decision making.
CASE 3: AUDIT
3.1) Discuss in detail the appointment and removal of external auditors.
Basically company has 3 committees. There are strategic planning, audit, remuneration and evaluation. The main objectives of the Audit committee are to recruit or replace the external auditor, to make communication between internal auditor and external auditor, to supervise company's finance statements and to publish it.
Normally Audit Committee recruits external auditor after getting conformation from shareholders at company's AGM. The audit committee is responsible for selection, and recruitment of the external auditors on the basis of assessment. Once auditor is recommended board will get confirmation from BOD and senior executives. After recruiting external auditor a company must rotate their external auditor after every 5 years.
Removal of external auditors is bit similar to the selection process. Audit committee prepares the report of the responsibilities and roles in the company and which steps to be taken by the external auditors to prevent problems occur in the business related to financial reports. And committee has to submit report to the board of directors. If there will be any disagreement or conflict occurs or if board of directors will not be satisfy with external auditors they will ask committee to remove that external auditor and replace another auditor. And this process will issue a report as a report of share holders in annual report.
3.3) discuss the key differences between internal audit and external audit.
As both internal & external audits are important for the organisation. There are some differences between internal and external audit systems.
Internal audit normally shows whether the operation, company comply as per auditing standards or not. Where external audit reviews that at the end of each year company's financial reports are complete or not. External audit is directly or indirectly concerned with internal audit system. ex:-an external auditor may use the data which is being used by internal auditor. While internal audit is saperate process not connected with external audit at all. Internal audit process is concern with the internal day to day tasks while external audit concerned with internal audit process on yearly basis to examine company's financial statements.
CASE 4: PROFESSIONAL VALUES,ETHICS AND ATTITUDES.
4.1) Discuss integrity, objectivity, professional competence and due care, confidentiality and professional behaviour regarding the code of ethics for professional accountants.