Partnership Business Advantages and Disadvantages
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This document explains partnerships as a business type. It describes the advantages and disadvantages of partnerships including additional finance, shared knowledge and experience, shared responsibilities and decisions, and shared risks, as well as potential issues of one partner's actions influencing the entire business, discussions happening before decisions are finalized, disagreements potentially arising, and the liabilities of the partners for business debts.
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very common form of business is a **partnership**. A partnership is a business in which two or more people work together as owners with a view to making profits. Normally, there cannot be more than 20 partners in a business. Professional people such as accountants and solicitors oft en operate as...
very common form of business is a **partnership**. A partnership is a business in which two or more people work together as owners with a view to making profits. Normally, there cannot be more than 20 partners in a business. Professional people such as accountants and solicitors oft en operate as partnerships. A large number of family businesses also run as partnerships. Sometimes a new business is formed as a partnership, sometimes a partnership is formed when a sole trader wishes to expand his/her business, sometimes a partnership is formed when two or more sole traders agree to amalgamate their businesses. A partnership business will maintain double entry records in the same way as a sole trader. At the end of the financial year, an income statement and a statement of financial position are prepared. However, a partnership will prepare an extra account aft er the income statement. This is known as a profit and loss appropriation account. **19.2 The advantages and disadvantages of** **partnership businesses** Before agreeing to enter into a partnership business a person must consider the likely advantages and disadvantages of such an arrangement. The advantages and disadvantages are summarised as follows: **Advantages** Additional finance is available. Profits have to be shared among the partners. Additional knowledge, experience and skills are available. Decisions have to be recognised by all partners. The responsibilities are shared. Decisions may take longer to put into eff ect. The risks are shared. **Disadvantages** One partner's actions on behalf of the business are binding on all the partners. Discussions can take place before decisions are taken. Disagreements can occur. All partners are responsible for the debts of the business
