Define partnership. Explain any two advantages and disadvantages of partnership form of business.
OR
Why is partnership considered by some to be a relatively unpopular form of business ownership ? Explain the merits and limitations of partnership.
Partnership is considered by some to be a relatively unpopular form of business ownership, because the partners of a firm have unlimited liability. Personal assets may be used for repaying debts in case the business assets are insufficient.Merits:
1.Ease of formation and closure : A partnership firm can be formed easily by putting an agreement between the partners. There is no compulsion with respect to registration of the firm. Closure of the firm too is an easy task.
2.Balanced decision making : The partners can oversee different functions according to their areas of expertise. Because an individual is not forced to handle different activities, consequently decisions are likely to be more balanced.
3.More funds : In a partnership, the capital is contributed by a number of partners, so large amount of funds are available as compared to sole proprietorship.
limitations:
1.Unlimited liability : Partners are liable to repay debts even from their personal resources in case the business assets are not sufficient to meet the debts, so there is unlimited liability.
2.Limited resources : There is a restriction on the number of partners, and hence contribution in terms of capital investment is limited.
3.Possibility of conflicts : Partnership is run by a group of persons wherein decision making authority is shared. Difference of opinion on some issues may lead to disputes between partners.