(a) What is a partnership? [4 marks) (b) State any two advantages and any two disadvantages of a partnership [16 marks]

(a) Partnership. A partnership is a business association of between two and twenty persons (two and ten for banking) who agree to pool their capital and skills to carry on a lawful business in common with the aim of making and sharing profit. Their rights and duties are usually set out in a written agreement called the deed of partnership.

(b) Two advantages of a partnership:

• More capital. Because several partners contribute, a partnership can raise more capital than a one-man business, allowing larger operations.
• Combined skills and shared responsibility. Partners bring different talents and share the work, risks and losses, so decisions can be better and the burden on any one person is lighter.

Two disadvantages of a partnership:

• Unlimited liability. General partners are personally liable for the debts of the firm; if the business fails, their private property can be seized to settle debts.
• Disagreement and lack of continuity. Differences of opinion among partners can delay decisions and disrupt the business, and the partnership may be dissolved on the death, insanity or withdrawal of a partner.

Examination takeaway: define a partnership by its numbers (2 to 20), its shared capital and profit motive, and remember that unlimited liability is the disadvantage most often expected in the answer.