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Explain the main differences between a Sole Trader, a Limited Company and a Public Limited Company, in terms of accounting and reporting requirements

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Introduction

Explain the main differences between a Sole Trader, a Limited Company and a Public Limited Company, in terms of accounting and reporting requirements. Businesses can be classified by two types in general - Unincorporated firms and Incorporated firms. An unincorporated firm is one that is not registered with Companies House, who are the government registrar of companies, as a business and there are two main types - sole trader and partnership. A sole trader is the simplest form of business type. It is the business which is owned by only one person. Partnership is, in essence, like a sole trader but with the ownership shared between partners who can 2 or more. An incorporated firm is a firm that a registered firm at Companies House. In this category, there are two types - a private limited firm and a public limited firm. A private limited company is one where the liability is limited. To form and run a limited company it needs 1 or more owners and shareholders, who own at least one share each, and it has to file Memorandum & Articles of Association and prepare annual accounts which are that the company should summit to Companies House. Private limited companies can range significantly in size. ...read more.

Middle

Having shares to raise capital means that a public limited company has also limited liability. Therefore, ownership is open to anyone who wants to buy shares. Both private limited company and public limited company have similarities in the character, which the company is not owned or run by a particular person. The owners of an incorporated company are shareholders, but they are not necessarily involved in running the business and the company is managed by directors. Shareholders make profits from dividends of their shares what they have invested. It needs some legal works to form a business. By the legal works made, the company is sorted as a sole trader, partnership and etc, and also limit the liability for the owners. To be an unincorporated company, such as a sole trader and a partnership, the company does not have to be registered with Companies House. This means that company is not under control of law directly. It is under all owners' responsibility. However, it is different to form an incorporated company. The company should be registered with Companies House and defined either Plc or Ltd. The company itself presents all the legal responsibilities of the company, which means that the company has its own separate legal identity, so the company can sue or be sued. ...read more.

Conclusion

By law, an account must have; 1. Profit and Loss Account 2. Balance Sheet 3. Accounting Policies and Notes to the accounts 4. Directors' Report 5. Auditors' Report 6. Voluntary - this is not required by law e.g. chairman's Statement, any other relevant reports Auditors are appointed by shareholders and the people to investigate accounts and report whether they present a "True and Fair View" of the company's results and financial position at that date. Their opinions are expressed in Auditors' report, addressed to the shareholders. By Accounting Standards, these are required; 1. Cash Flow Statement 2. Summary Financial Statement 3. Consolidated Accounts Specifically for Public limited companies, Stock exchange requirements are applied by 'Yellow Book' regulation and detailed disclosure requirements. Three main types of the company form have very distinct differences each other. Depending on the structure, a business will make a decision. A sole trader is very easy to set up a business with full control of the business by the owner, but the owner has no limit liabilities and might not be able to cover all the works. Ltd. company is easier to raise capital than a sole trader, but the company can sell shares privately only. In the aspect, Plc. company is the best one to raise fund and control the business with separate powers of management, but the company needs to follow greater number of law than other types and also the owner of company might lose control. ...read more.

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