The Business Units In Commerce (Personal Businesses)
THE PARTNERSHIP BUSINESS – The responsibility of ownership is shared with at least one other person. Most of these firms are still small-scale and the partners generally run or manage the businesses, which are often found in the service sector of the economy-accountants, solicitors, retailers and decorators. Small factories, workshops and farms can be run as partnerships.
Advantages of partnerships
Some of the merits of sole-owner firms apply to partnerships.
1. They are easy to set up and run.
2. Owners and managers are the same people and they are in close. touch with daily problems affecting production.
3. They can provide a personal service.
4. There is an incentive to work hard as profits are shared. between a relatively small number of people.
5. There are more owners who can provide finance for the firm As they are often larger than sole-owner concerns they may have greater financial stability and stand a better chance of obtaining bank loans.
6. Responsibility rests with more than one person so the problems of long hours, holidays and sickness are less serious.
7. The partners can concentrate on different aspects of their firm’s work. They can specialize on what they can do best, whether that be buying, selling or bookkeeping or any of the other tasks. As they are larger firms better and more specialized equipment may be purchased.
Disadvantages of partnerships
Similar to those of sole-owner firms but less acute;
1. Even with 20 as the usual maximum number of partners the sources of finance are still somewhat limited and this limits the size of such firms.
2. Partners have unlimited liability for their firms debts and this could result in the personal ruin of one partner because of another partner’s bad management.
3. A partner’s death could terminate the business or may cause financial problems if the deceased partner’s share in the firm is taken out to pay his beneficiaries.
It is not uncommon for some partners to have little or no say in the running of their businesses. These are termed sleeping partners. Their capital remains in the concern but they leave the management of it to the other partners.
In addition to ordinary partnerships discussed above, it is possible to set up a limited partnership. This allows for any sleeping partners, given that they do not assist in the running of the firm in any way, to be given the protection of limited liability. If their firm collapsed they would only stand to lose the capital they invested. Should some debts remain they would not have to sell off private assets to help pay them. This arrangement is granted on the condition that at least one partner, referred to as the general partner, has unlimited liability for the firms debts.