Akani and Sule are sole proprietors. Akani proposed that their businesses be merged to form a partnership. (a) Explain to Sule how such a partnership would ...

Answer Details

(a) How the partnership would be to their mutual benefit

Akani should explain to Sule the following advantages of merging their two sole proprietorships into a partnership:

1. Larger capital: The pooling of their resources will bring in more capital, enabling the business to expand and take on bigger contracts.
2. Combined skills and ideas: They will benefit from each other's knowledge, experience and abilities, leading to better decisions and management.
3. Sharing of risks and losses: Any risk or loss suffered by the business will be shared between them instead of being borne by one person alone.
4. Greater borrowing power: A larger business with more owners can obtain loans and credit more easily than a single trader.
5. Division of labour and continuity: They can share duties according to ability, and the business can continue when one partner is ill or absent, giving it more stability than a one-man business.

(b) Five reasons why Sule might be reluctant to accept the proposal

1. Loss of sole control: Sule will no longer make decisions alone; he must now consult and agree with Akani.
2. Sharing of profits: The profits he formerly kept entirely to himself must now be shared with Akani.
3. Liability for a partner's actions: Under unlimited liability, Sule can be held responsible for debts and mistakes caused by Akani.
4. Possibility of disagreement: Differences in opinion between the partners could lead to quarrels that disrupt the business.
5. Loss of independence and identity: Sule loses the freedom and personal identity of running his own business, and the partnership may break up on the death or withdrawal of a partner.