Amar, Akbar, Anthony

Three Types of Business Entities

Sole Proprietorship Examples No. of Shareholders Management Control M/s Ladduram & Sons One Person Proprietor Partnership S S Billimoria & Co. Minimum: 2 Maximum: 20 Partners Company Mro-tek Limited Minimum: 7 Maximum: No Limit Board of Directors

Liability
Legal Registration Flexibility

Unlimited
No Provision Maximum

Unlimited
Voluntary Depends on Partners

Limited
Compulsory Comparatively Less
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Amar Akbar Anthony

Amar , Akbar and Anthony were three school time friends . After passing from school , the three met each other and were discussing about their future plans . All three were sure that they would take up to doing business after finishing their graduation.

Amar was very ambitious and always thought of growing very fast and managing a large empire of business. He was contemplating setting up of a retail chain of pan shops across the country . Akbar never believed in such large dreams and had always believed in being self reliant. Akbar was planning to start a sponge iron unit.
Anthony believed in being a team member . He was planning to start a event management firm.
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Required
Suggest the type of business entity that would fit the profile of each individual. Give reasons

In the above case, should the type of business being taken up , influence the type of business entity ? Discuss
What other factors do you think are essential while deciding on the type of business entity.

Issue Income Tax Audit External (Statutory) Audit Internal Audit Registration Process Liability No of Shareholders Annual (RoC) Papers Raising Finance

Sole Proprietorship > 40 L turnover Profession > 10 Not Required

Partnership > 40 L turnover Profession > 10 Not Required

Private Limited > 40 L turnover Profession > 10 Compulsory under the Statute Companies Act Turnover is > Rs 10 crores Under Companies Act 1956 (RoC) Limited Min 2 Max 50 RoC requirements (state wise) Decided by BoD by a special resolution (MoA rights)

Public Limited > 40 L turnover Profession > 10 Compulsory under the Statute Companies Act Turnover is > Rs 10 crores Under Companies Act 1956 (RoC) Limited Min 7 Max Unlimited RoC requirements (state wise) AGM or EGM

Only Limited (Guaranteed) > 40 L turnover Profession > 10 Compulsory under Guarantee Limited Compan Turnover is > Rs 10 crores Under Companies Act 1956 (RoC) Limited by Guarantee Min 2 Max 50 RoC requirements (state wise) Decided by BoD by a special resolution (MoA rights)

Not Required Not Required Unlimited Single Not required to file other than IT dept. Secured / Unsecured Loans

Not Required Partnership deed attested in Court Unlimited Min 2 Max 20 Not required to file other than IT dept. Secured / Unsecured Loans

Issue Income Tax Audit External (Statutory) Audit Internal Audit Registration Process Liability No of Shareholders Annual (RoC) Papers Raising Finance

Sole Proprietorship > 40 L turnover Profession > 10 Not Required

Partnership > 40 L turnover Profession > 10 Not Required

Private Limited > 40 L turnover Profession > 10 Compulsory under the Statute Companies Act Turnover is > Rs 10 crores Under Companies Act 1956 (RoC) Limited Min 2 Max 50 RoC requirements (state wise) Decided by BoD by a special resolution (MoA rights)

Public Limited > 40 L turnover Profession > 10 Compulsory under the Statute Companies Act Turnover is > Rs 10 crores Under Companies Act 1956 (RoC) Limited Min 7 Max Unlimited RoC requirements (state wise) AGM or EGM

Only Limited (Guaranteed) > 40 L turnover Profession > 10 Compulsory under Guarantee Limited Compan Turnover is > Rs 10 crores Under Companies Act 1956 (RoC) Limited by Guarantee Min 2 Max 50 RoC requirements (state wise) Decided by BoD by a special resolution (MoA rights)

Not Required Not Required Unlimited Single Not required to file other than IT dept. Secured / Unsecured Loans

Not Required Partnership deed attested in Court Unlimited Min 2 Max 20 Not required to file other than IT dept. Secured / Unsecured Loans

The case details the following three points on the friends: Amar was very ambitious and always thought of growing fast A Retail Chain of Pan Shops across the country Akbar was not ambitious and believed in being self-reliant Sponge Iron Unit Anthony was a team member Event Management Firm

Given the limited amount of information about each person, one can state that LLC suits Amar, Sole Proprietorship suits Akbar, and Partnership suits Anthony. Point to note that the proprietorship and partnership kind of organizations have unlimited liability and also have to pay only personal tax on profits. On the other hand, a company has a limited liability, has double taxation (personal tax, corporate tax, and sometimes even dividend tax) and also involves more paper work (due to regulatory requirements). Company is a dynamic entity (say, due to low risk and ease of getting easily financed by way of both debt and equity). The three factors which make it easier for a LLC to raise capital are unlimited life, easy ownership transferability, & of course, limited liability.
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 The type of business being taken up does influence on the type of business entity being selected for the venture. For example, a business which is large and/or has growth opportunities should be pursued using a LLC whereas a farmer managing his small farm and not interested in expanding should go in for a sole proprietorship kind of organization.

In a economic scenario, wherein the corporate are forced to pay high tax and have large amount of paper work, it is very likely to force most people to shift to sole proprietorship kind of organizations.
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Shareholders (owners) biases in deciding on the type of organization. For example, How transparent do you want to be? Do you want to evade tax? Do you want to cut down on your paper work? Is the business very risky? Are the partners comfortable enough with each other? Are there any agency related problems if so how are they being controlled?
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To the optimist, the glass is half full.

To the pessimist, the glass is half empty. To the accountant, the glass is twice as big as it needs to be.

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Introduction
Accounting

Financial Accounting

Accounting Analysis

Used for reporting

Providing information for planning and control

Audience: Outside World (Govt. Bodies, society, etc.)

Audience: Internal (Managers and investors)

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Foundations of Accounting
3 Founding Ideas of Accounting

Capital Maintenance

Productive Capital

Profitable Operations

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Purposes Of Accounting Information

Purposes of Accounting Information

Score Keeping

Attention Directing

Problem Solving

Reporting on the financial health

Signaling the user about the need to take a decision

Provision of such information that would enable to find solutions

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Branches of Accounting
Accounting

Government Accounting

Enterprise Accounting

Social Accounting

Financial Accounting

Management Accounting
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Enterprise Accounting
Specifically addresses issues of measurement and valuation in the context of business enterprises Has evolved into two disciplines Financial Accounting Providing financial information relating to the entity to outsiders Management/Cost Accounting Reporting the activities of the entity to managers so as to enable them to plan and control the activities of the entity vis-vis other competing entities
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Accounting Information users

Stakeholders are the ones who have an interest in what happens as a result of the entities activities Stakeholders classified as Internal users viz. managers External users viz. creditors and equity investors, government, society

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Class Discussion
Stakeholder
Government

Area of interest Tax liabilities of the firm

Unions & staff Potential for pay awards and bonus deals Public/Society Ethical & environmental activities of the firm Whether the firm is has a long-term future Lenders Shareholders Profitability and share performance

Customers

Ability of the firm to carry on providing a service or producing a product

Note: These should not be regarded as the 'only' answers

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BHEL and its Stakeholders

Stakeholder Government & its agencies Top Managers, Workers, Unions Public Long-term Lenders, Present & Potential Shareholders Fund managers & Analysts Customer Supplier & Other Creditors Would be interested due to Income tax & other tax liabilities Potential for pay hikes, bonus, and incentives Ethical and environmental activities Whether the firm has a long-term future Profitability & share performance Ability to take a bigger order, etc Whether to offer the firm credit and if so, terms

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Thank You

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