Question

QUESTION 1 Discuss TWO (2) advantages and disadvantages of partnerships.

Answer 1

Let us understand what is partnership

Partnership is the formal agreement by two or more parties to manage and operate a business and share its profits and losses.

Advantages of Partnership business

1. Easy in formation: In partnership firm all that is required to form is the agreement among the partners. And the  expenses relating to registration are not much.
2. Pooling of financial resources and managerial skills: Partnership commands more financial resources when compared to sole proprietorship. This helps in expanding business and earning more profits, as and when a firm requires more money more partners can be admitted. And as for managerial skills, the partnership facilitates pooling of all the skills of its partners leading to greater efficiency. for instance, one can handle production while other can manage legal and while other can look after marketing activities and so on.

Disadvantages :

1. Unlimited liability : Partners are responsible for all the debts and liabilities of the business personally.
2. Uncertainty of existence : The retirement, death, bankruptcy or lunacy of any partner may put end to partnership. and also it comes to an end if any partner demands to close the partnership deed.
3. Difficulty in withdrawal : Al though it easy to form but cannot be easily withdrawn as it requires the consent of all the other partners.