- 10 Marks
Question
Your childhood friend who knows nothing about business operations has decided to establish a form of business organization with funds bequeathed to him by his late uncle. While you believe a limited liability company is most suitable, he prefers either a sole proprietorship or partnership.
Required:
Explain to your friend FIVE (5) reasons a Partnership form of business would not be a good idea.
Answer
Disadvantages of Partnership:
- Unlimited Liability:
Unlike a limited liability company, members of a partnership have unlimited liability, meaning their personal assets may be attached to defray the debts of the business.
(2 marks) - Death of a Partner:
The death of a partner can result in the dissolution of the partnership, potentially disrupting the business operations.
(2 marks) - Partner’s Actions:
The inappropriate actions of one partner can bind the entire partnership, exposing all partners to potential risks and liabilities.
(2 marks) - Liability for Partner’s Debts:
All partners are liable for the business debts incurred by any one partner, which can lead to unpleasant consequences for the firm if one partner makes poor financial decisions.
(2 marks) - Decision Making:
Decision-making in a partnership can be slow and cumbersome, as all partners must be consulted before a decision is made, which may not be as efficient as in other business structures.
(2 marks)
- Tags: Business Structure, Decision Making, Liability, Partnership
- Level: Level 1
- Topic: The Business Organisation and its Stakeholders
- Series: JULY 2023
- Uploader: Theophilus