Does the type of business, (Proprietorship, Partnership, Corporation) impact what is included in a businesses equity?

Expert Solution

Yes, the type of business, being a Proprietorship, Partnership or Corporation impacts what is included in a business equity.

In case of proprietorship concern, the Capital is the cash amount contributed by the proprietor of the concern. A sole proprietorship concern is not an independent business entity. It operates under the name and personal responsibility of the owner. Thus, the entire balance of capital visible in the balance sheet of a proprietor is the amount invested by him in business.

In case of a Partnership, the capital refers to the contribution made by partners to the partnership. This contribution, however, can either be in the form of cash, or in the form of market value of other types of assets. In a firm having a number of partners, all the partners contribute to business and the capital account is mainatined in their respective names in the balance sheet. In addition to this capital, which is referred to as the Fixed Capital, the partners may also have a Current Capital Account.

In case of a Corporation, the capital is the amount invested in the company so that it can carry on its activities. This capital is referred to as the share capital. It is represented by the money invested by the shareholders. The share capital is recorded at Book value of share. However, in case of listed companies, these shares when sold are valued at Fair Market Value and realise the market value per share.

Thus, the type of business impacts what is included in a business equity.

ekkarill92 answered 1 year ago

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