(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 a partnership business.
Explanation
(a) Problems of the partnership include:
(i) Unlimited liability: The partners are liable to the debts of the business to no limit.
(ii) Difficulty in management: Decision-taking is going to be long and slow as every partner would want their voice to be heard, thus, creating disagreement.
(iii) Inability to raise sufficient capital: Partners cannot invite the public to raise capital, and because of its unlimited liability, members fear to invest in the partnership.
(iv) Risk of dissolution: The partnership stands dissolved at the death, bankruptcy or insanity of a member
(v) Action of one partner on others: There is the danger that one reckless partner can ruin others.
(vi) Partnership profits have to be shared among members; some may get more than the other.
(vii) Success of partnership depends on the ability of partners to work as a team.
(viii) The growth of the business is limited to the managerial abilities of the partners.
(b) Conditions suitable for the formation of partnership are:
(i) A large amount of capital is necessary for the business as a limited company.
(ii) The success of the business requires the skill or knowledge of experienced members of the partnership/joint decision, for example, solicitors, doctors, etc.
(iii) The ownership and control should not be extended outside a family or friends.
(iv) Partnership is suitable for executing short term ventures.