(a) Explain to a group of Sole… | Commerce

Question 1 Report

(a) Explain to a group of Sole Proprietors who wish to form a partnership any seven problems they are likely to face.

(b) State three conditions suitable for the formation of partnership business.

Answer

(a) Seven problems sole proprietors are likely to face on forming a partnership

Sharing of profit: Profit which the sole proprietor formerly enjoyed alone must now be shared among the partners.
Loss of sole/absolute control: Each former owner can no longer take decisions alone; decisions must be taken jointly, which can be frustrating.
Disagreements and quarrels: Differences in opinion, temperament and business ideas among partners may lead to conflicts that disrupt the business.
Unlimited liability: The partners are jointly and severally liable for the debts of the firm, so one partner's private property may be used to settle the firm's debts.
Liability for the acts of other partners: Since each partner is an agent of the firm, one partner can bind the others by his actions, and all suffer for the mistakes or dishonesty of one.
Delay in decision-making: Because major decisions require consultation and agreement, action may be slow, causing the firm to miss opportunities.
Difficulty in withdrawing capital and instability: A partner cannot easily withdraw his capital, and the death, insanity or bankruptcy of one partner can bring the whole firm to an end.

(Continuity problems and difficulty in transferring one's share are also acceptable.)

(b) Three conditions suitable for the formation of a partnership business

When more capital is required: A partnership is suitable where the business needs more funds than one person can provide.
Where different skills are needed: It suits situations where the venture requires the combined expertise of several people, such as a firm of lawyers, doctors or accountants.
Where mutual trust exists among the persons: Partnership is suitable when the intending partners know, trust and are willing to cooperate with one another in good faith.

(A desire to spread risk and share responsibility is also acceptable.)

Answer Details

(a) Seven problems sole proprietors are likely to face on forming a partnership

Sharing of profit: Profit which the sole proprietor formerly enjoyed alone must now be shared among the partners.
Loss of sole/absolute control: Each former owner can no longer take decisions alone; decisions must be taken jointly, which can be frustrating.
Disagreements and quarrels: Differences in opinion, temperament and business ideas among partners may lead to conflicts that disrupt the business.
Unlimited liability: The partners are jointly and severally liable for the debts of the firm, so one partner's private property may be used to settle the firm's debts.
Liability for the acts of other partners: Since each partner is an agent of the firm, one partner can bind the others by his actions, and all suffer for the mistakes or dishonesty of one.
Delay in decision-making: Because major decisions require consultation and agreement, action may be slow, causing the firm to miss opportunities.
Difficulty in withdrawing capital and instability: A partner cannot easily withdraw his capital, and the death, insanity or bankruptcy of one partner can bring the whole firm to an end.

(Continuity problems and difficulty in transferring one's share are also acceptable.)

(b) Three conditions suitable for the formation of a partnership business

When more capital is required: A partnership is suitable where the business needs more funds than one person can provide.
Where different skills are needed: It suits situations where the venture requires the combined expertise of several people, such as a firm of lawyers, doctors or accountants.
Where mutual trust exists among the persons: Partnership is suitable when the intending partners know, trust and are willing to cooperate with one another in good faith.

(A desire to spread risk and share responsibility is also acceptable.)

(a) Explain to a group of Sole Proprietors who wish to form a partnership any seven problems they are likely to face. (b) State three conditions suitable fo...