In the business world, there are many forms of businesses. Cooper, McClelland, Pearce, Prisinzano, Sullivan, Yagan, & Zwick (2016) argue that the three most common forms of businesses are a proprietorship, partnership, and corporations . These business forms are convenient and have their advantages and disadvantages. One important aspect of all three forms of businesses is the financial information created consistently and divided into financial years. In all three forms of business, financial information is important to different stakeholders for different reasons. These core users of financial information are seen in the chart below.
| Proprietorship F/I users | Partnership F/I core users | Corporations F/I core users |
| The business owner | Partners | Shareholders and investors |
| Lenders and creditors | Lenders and creditors | |
| Tax authorities | Tax authorities | |
| Employees and their unions | ||
| Suppliers | ||
| Management |
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Proprietorship
Proprietorship, also known sole proprietorship refers to a type of business which is owned by one person, giving them unfettered access over the control of the business. Burns (2016) argues that d ue to the nature of proprietorship business form, the key user of financial information is the business owner. For the business owner, one of the most important financial information to look at is from the balance sheet. The reason for this is because it shows the business owner the status of their assets vis-à-vis their liabilities. Their income statement also gives the owner a clear picture of their profitability and the value added by the various products sold by the business.
Partnership
Unlike a sole proprietorship, a business can be regarded as a partnership if ownership is by more than one person. According to Drake, Quinn, & Thornock (2017), pa rtnership forms of businesses are usually preferable because of the tax advantages it presents and access to more resources. The partners are one of the key users of the financial information in the company. The reason for this is because they would need to know the status of their assets and liabilities, given the fact that they have unlimited liability. Financial information would also help them to gauge their profitability or loss and give them a clear picture on the areas they need to target to turn profitability in case of loss or increase profitability if the partnership is doing well.
Lenders are also another important use of financial information. Drake et al. (2017) further point out that f or lenders/creditors, they need to analyze a partnership’s financial information with regards to the ability of the partnership to satisfy its debt obligations. The determination of this is possible from the statement of financial position as well as the income statement. Another final key user of financial information in partnership is the tax authorities. For partnership, the income of the partners is the only point of taxation. The tax authorities and institution would, therefore, be interest in the income statement of the partnership to determine whether the income tax paid by the partners of the company represents a true position of the amount they should have paid.
Corporation
A corporation is a company which has a separate legal entity with its owners. Brigham, Ehrhardt, Nason, & Gessaroli (2016) point out that i n a corporation, the sale of shares goes to investors who then become shareholders of the corporation. They, however, have limited liability and are not involved in the routine running of the company. They appoint a board of directors who then appoint the corporation's senior management. The key users of financial information in a corporation are the shareholders and prospective investors, lenders and creditors, management, employees and their unions, and tax authorities.
The current shareholders of a corporation use the financial information to know whether their investment in the company is given them their expected rate of return. Krüger (2015) argues that i f not, then they can vote in their AGM’s the change the directors of the company. It is also important for prospective investors of the company to determine its performance and financial positions. The management of a corporation also relies on financial information to make major decisions. These decisions point to the direction which the company will take such as goals, objectives, strategy, mission, vision, and so on. The management adjusts all these based on the outlook of the financial information.
Internally, the employees and their respective unions also use financial information. According to Drake et al. (2017), employees are some of the most important resources within a company. It is important to them that their compensation is commensurate to their output and financial performance of the corporation. They advocate for these rights through their unions. The financial information, especially the income statement, reveals the returns and margins the company makes from their and input and productivity. An increase in profit margin as revealed by the financial statements would mean that the employees through their unions would demand an increase in their pay and benefit from the corporation.
One external user of the financial information from corporations is lenders and creditors. Cooper et al. (2016) posit that before advancing credit and loans to corporations, they go through their financial statements to determine their creditworthiness which shows their ability or inability to pay back. Supplies also fall in this category. Since corporations do not produce everything internally, the suppliers they source it from look at the corporation’s financial statements to also determine whether or not payments will happen in time. Tax authorities are other important users of financial statements. Since corporations pay taxation at the net profit and dividends level, financial statements reveal whether tax payments happened as required by the law.
Conclusion
From the chart and the subsequent discussion, it is clear to see that there are many users of financial information. The core users of financial information from the three forms of businesses all use it to advance their interest. It is, therefore, in their best interest that the financial information is timely, reliable, and relevant.
References
Brigham, E. F., Ehrhardt, M. C., Nason, R. R., & Gessaroli, J. (2016). Financial Management: Theory And Practice, Canadian Edition . Nelson Education.
Burns, P. (2016). Entrepreneurship and small business . Palgrave Macmillan Limited.
Cooper, M., McClelland, J., Pearce, J., Prisinzano, R., Sullivan, J., Yagan, D., Zwick, E. (2016). Business in the United States: Who owns it, and how much tax do they pay?. Tax Policy and the Economy , 30 (1), 91-128.
Drake, M. S., Quinn, P. J., & Thornock, J. R. (2017). Who uses financial statements? A demographic analysis of financial statement downloads from EDGAR. Accounting Horizons , 31 (3), 55-68.
Krüger, P. (2015). Corporate goodness and shareholder wealth. Journal of financial economics , 115 (2), 304-329.
