Question

Question 1: Forms of business ownership                                                                                  (5 marks)

Sally and Sarah are considering setting up a business to import furniture into Australia. They are considering using a partnership for their business structure.

Advise Sarah and Sally as to whether you think they are choosing the most suitable structure for their business. In your answer fully explain 2 advantages and 2 disadvantages of this business structure.

Answer 1

Partnership is one of the forms of business ownership, in which two or more individuals join together with a formal agreement to manage and operate a business and sharing of profit/ loss on a pre determined basis. In the given situation of Sally and Sarah decided to operate a partnership form of furniture business is suitable one. If they start two separate furniture businesses, they will face numerous problems such as financial scarcity, limited management skills, business operation risk and the responsibility of whole liability of the business. Further in future, if business expands, additional capital also brought up. As a proprietor either Sally or Sarah alone can’t do it, so association of persons with different qualities helps reduce the shortcomings such business operation. For example, Sally may good in managing the business but not have capital, similarly Sarah may be financially sound but poor in managing the business. So the joint venture of them gives (partnership) more result than the business doing individually.

Advantages of Partnership form of business     

• Combination of different skills: the partnership firms always as the result of the combination of two or more individuals having different knowledge, skill, experience, and talents. Hence the qualities of partners also depicts in the performance of the firms
• Provision of sharing risk: if loss incurred by the firm, the burden of loss distributed among the partners.

Disadvantages of partnership form of business

• · Loss of Autonomy: in partnership the control of the business shared among the partners hence the individuals can’t take decisions or engage operation of business without the consent of other partners.
• Lack of Stability and continuity: the operation of the business is depends on the agreement among the partners, if any change in the deed it also effects the operation of the firms. So the continuity and the stability of businesses is always depends upon the partners wish and desire