Accounting Assignment - Partnerships, Limited Liabilty Companies and share capital

Authors Avatar by carlyxx (student)

Accounting 2 assignment by Carly Faulkner. BSMA1

The final accounts in relation to Sole traders and Partnerships.

In the final accounts of a sole trader the capital is brought in by one individual. This person is entitled to all the profits. This also means that if the individual runs into difficulty and cannot meet his/her debt repayments the creditor can take the individual’s personal assets e.g. car, house, etc. In sole tradership the balance sheet will show only one capital account. Whereas in a partnership, the capital is brought in by more than one person and less than twenty, the profit is shared out in whatever proportion that is stipulated by their, “Partnership Agreement” which is explained below. If there are three partners in the company then there will be three separate capital accounts, one for each partner.

The structure of a partnership agreement.

A partnership is an entity where ownership is divided between at least two people. Partnerships have unlimited liability. A partnership agreement is an agreement of the rights and liabilities of the partners of a company this will lay out ratio for sharing profits and losses, any salary entitlements, allowable drawings from the business and any other conditions they wish to agree. This agreement is not set by the law. Partners agree on matters such as, how much capital was paid by each partner, profit or loss sharing ratios, salary entitlements (if one partner is putting a lot of work in to the business then that partner should get paid more than a partner who does not do much in the company “sleeping partner”), any rate of interest claimable by individual partners and allowable drawings and any rate of interest chargeable.

Join now!

The structure of Limited Liability Companies.

The owners of a Limited Liability Company are known as shareholders. There are many shareholders in this type of company. Shareholders will elect the directors to run the business. It is possible for directors to be shareholders of the company. Shareholders will not be personally responsible for any losses the company may endure. It is treated as a completely separate entity. The shareholders liability will be limited to the original price the person pays for the share, e.g. If an individual pays one euro for their share the maximum that shareholder can lose is ...

This is a preview of the whole essay