briefly explain the merits and demerits of partnership form of business
Answers
Needed:
- Briefly explain the merits and demerits of partnership form of business.
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What is partnership Business?
A partnership is a association of two or more persons, who have agreed to carry on a business and to share its profits and Losśes as per agreed terms. Normally agreed partners combine there financial resources and managerial abilities to carry on a business and share its profits and Losśes. This relationship of a partnership exists out of contract and not out of status.
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Features of partnership Business
(i) Lawful Business - The term 'business' includes all traders, professions or occupations. The purpose of a partnership agreement is to carry on a lawful business and nothing else.
(ii) Name of the business - The partnership firm must have its own name. The name in which the business is carried on is called the 'frim name'.
(iii) Contractual relationship - Partnership is a contractual relationship between the persons who are competent to enter into a contact. Relationship between partners arises from contract and not from status.
(iv) Profit motives and sharing of profits - Partnership business is formed with the object of earning profits. The earned profits is to be distributed among the partners as per an agreed ratio.
(v) Restrictions on transfer of share - No partner can transfer his share in the partnership without the prior consent of all the other partners.
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Merits of partnership business.
(i) Simple formation - It can be formed easily without much expenses and legal formalities. Only an agreement between the partners is required. Registration is also not compulsory.
(ii) Flexibility of operations - A partner can introduce any changes that he considers desirable to meet the changing circumstances. There is no legal restrictions as long as the firm carries on a lawful business.
(iii) Prompt and balanced decisions - A partnership firm is a combination of abilities, experience and judgement of different persons. Such a combination of skills facilitates the making of balanced and sound decisions.
(iv) Democratic Organization - Every partner can participate in the operation of the business of a partnership firm. Moreover, all the partners are consulted before taking any decisions.
(v) Protection to minor partner - A minor partner can be taken into a frim with limited liability. He shares the profits of the business only. He may or may not be a partner after attaining maturity.
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Demerits of partnership business.
(i) Unlimited Liability - The liabilities of the partners is unlimited and they are jointly responsible for all acts and debtś. The creditors can make any or all of the partners liable and recover there dues even from the private property of the partners.
(ii) Risk of dishonest co-partners - A dishonest partner may cause injury to the other partners. His selfishness and greed may encourage him to defraud his co-partners.
(iii) Responsibility after winding up - The responsibility of the partners continues even after dissolution of the business, till the public notification.
(iv) Risk of implied authority - Each partner of the firm has the implied authority to act on behalf of the firm and all other partners. A partner may abuse his implied authority for personal gain.
(v) Social Losś- The abrupt closure of a partnership firm is harmful, not only to its partners, but also to the society at large, if the business happens to be efficient and socially useful. until
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