Partnerships

Question 1

Definition of partnership

Answer 1

A business owned and controlled by a minimum of 2 partners and a maximum of 20 partners.

Question 2

Features of a partnership

Answer 2

-Partners agree between themselves how they will run and organise the business. (Shared decision making, written in deed of partnership)

• easier to set up and required only the agreement of the partners about how the business will be organised then a PLC and a LTD.
• Partners are entitled to keep any profits but are jointly responsible for any debts incurred. If no Deed of Partnership (DOP) all profits/ losses are shared equally.
• They provide the entire capital for setting up their business (no shareholders) and their main aim is to make profit. Mostly professions.

Question 3

3 advantages of partnerships

Answer 3

• specialisation: partners bring different skills, as partners do different things. Therefore increased productivity
• shared responsibility: Partners share responsibility for decision making and can discuss problems. Therefore less stress and pressure on you to make the correct decision and less work load.
• privacy: Financial accounts don’t have to be published, no disclosure of accounts. Therefore rivals can’t see accounts.

Question 4

3 disadvantages of partnerships

Answer 4

• unlimited liability: If a business goes bankrupt it is liable for all debts incurred- even if the debt is created by the other partner. Therefore personal assets may have to be sold.
• conflict: Possibility of conflict between partners, therefore it might delay decision process. Therefore decreased time and production.
• accountability: All partners are held liable for 1 persons actions or decisions therefore need to be careful when choosing partners.