Akani and Sule are sole proprietors. Akani proposed that their businesses be merged to form a partnership.
(a) Explain to Sule how such a partnership would be to their mutual benefit
(b) State five reasons why Sule might be reluctant to accept the proposal.
Explanation
(a). Benefits of the Partnership are:
(i) Sufficient capital: This kind of organisation allows the polling together of funds for instance, through borrowing from banks.
(ii) Specialization in management: The work of the firm is shared according to the area of specialization of each partner.
(iii) .Special skills can be pooled together by the partners.
(vi) Privacy: In partnership, there is high degree of privacy as partnerships are not required to lodge their books with the Registrar of companies.
(v) Continuity: Partnerships have greater continuity because the death of one partner may not end the existence of the business.
(vi)The burden of managing and controlling the establishment is shared by the partners and this reduces the strain which business life entails on individuals.
(vii) Joint and better decisions: Decisions taken by two people will be better than when it is taken by one person.
(b) Reasons why Sule might be reluctant to accept the proposal are:
(i) The misconduct of an unscrupulous partner can ruin the whole business.
(ii)The death of a general partner which could be natural, will end the existence of the firm and bring hardship to the other partners.
(iii) Members may disagree on a number of issues which can affect the smooth running of the firm.
(iv) The business is not a legal entity. If the business is declared bankrupt, the partners will suffer and not the business.
(v) Partnership does not enjoy limited liability. The risk inherent in unlimited liability is high because all partners are liable for the firm's debts irrespective of the amount of capital contributed by each individual.
(vi) Decision making will be slow as many people must be consulted before any decision or policy is taken or made.