Special Case Of Partnership

Question 1

Name the 6 advantage of partnership.

Answer 1

1. More funds available
2. Enhanced credit standing
3. Increased specialization of management skills
4. Possibilities of growth and expansion
5. Freedom from regulation
6. Savings in tax

Question 2

Name the 5 disadvantages of partnership

Answer 2

Unlimited liability 
Dilution of control
Group commitment
Friction inevitable
Limited life

Question 3

Discuss Limited Partnership

Answer 3

This is a form of partnership similar to general partnership except that in addition to one or more general partners, there are one or more limited partners. The limited partners have limited liability, Only liable on debts incurred by the firm to the extent of their registered investment and they have no management authority. The general partners pay the limited partners a return on their investment.

#In addition to one or more general partners, there are one or more limited partners.
#Limited partners have limited liability, no management authority.
#A return on their investment.

Question 4

Discuss more funds available

Answer 4

a larger amount of capital is available.

More funds available - since the resources of two or more individuals are combined, a larger amount of CAPTIAL is available. If an individual does not have enough funds to start a new venture, he can always invite other investors to join as partners. A successful sole proprietor short of finance for expansion may invite new investors and convert the business into a partnership.

Question 5

Discuss enhanced credit standing

Answer 5

Enhance credit standing - Financial institutions are more willing to extent credit when partners make themselves personally liable for the debts of the partnership. Since there are more owners in the partnership, creditors have more collateral to support their loans.

#Financial institutions are more willing to extent credit.
#Since there are more owners in the partnership, creditors have more collateral to support their loans.

Question 6

Discuss Increased Specialisation of management skills

Answer 6

Partners of different backgrounds can complement one another.

Increased specialization of management skills - Partners of different background can complement one another in terms of skills, contacts and specialization.

Question 7

Discuss possibilities of growth and expansion.

Answer 7

Firms’s growth and expansion.

Possibilities of growth and expansion - Diversification in management and multiple sources of capital enhance the prospects for a firm’s growth and expansion into new products or markets. A partnership can attract and retain key personnel by admitting loyal and capable employees as partners.

Question 8

Discuss Freedom from regulation

Answer 8

Not required to submit their accounts.

Freedom from regulation - A partnership is not required to submit their accounts to the Accounting & Corporate Regulatory Authority and is not subjected to as much regulation compared to the incorporated companies.

Question 9

Discuss savings in tax.

Answer 9

Individual partners must pay their own personal income tax. no tax is levied on the partnership itself, as it is not regarded as a separate legal entity from the partners. Personal income tax is on a graduated scale, ranging from 0% to a maximum of 20%.

Question 10

Discuss Unlimited Liability. Partnership

Answer 10

All partners are personally jointly liable to an unlimited extent for the debts and obligations of the partnership. EVERY partner is liable for the losses caused by the wrongful act or omission of another partner acting in the ordinary course of business. {not applicable for limited partnerships}

Question 11

Discuss Dilution of control.

Answer 11

Dilution of control - Since there is more than one owner, an individual partner does not have a total control of the business and must ensure that his decisions are acceptable to the other partners.

Question 12

Discuss group commitment

Answer 12

Group commitment - Each partner in a partnership is held responsible for the decisions of other partners. All acts by any partner in the name of the partnership are binding on all partners even though the other may not know the action of one partner.

Question 13

Discuss Friction Inevitable

Answer 13

Friction inevitable - Since each partners is entitled to say in the management of the firm, there may be disagreement.

Question 14

Discuss limited life, partnership

Answer 14

Limited life - in the event of the death or resignation of one of the partners for some reason, the business operations may come to an end and a new business has to be formed.