Mirpur University of science and technology

Submitted by:………... Haris Idrees

Submitted to:…………Muhammad adeel
Assignment:…………..financial accounting
Roll no:……………….FA19-BBA-018
Session:……………….2019-23
Department:………….MBS
Class:…………………BBA(2nd)
Date:………………….10Aug-2020
What is Partnership?
A Partnership is a business structure in which two or more individuals manage and operate
a business in accordance with the terms and objectives set out in the Partnership Deed. It is an
important document that outlines in detail, the powers, duties, rights, and responsibilities of all the
Partners.

Advantages:

The business partnership offers a lot of advantages to those who choose to use it. There
are following advantages of business partnership.

Partnership deed:
Deed having a partnership deed provides a legal responsibility between partners of the firm.
However, it need not be registered. Hence, you can run an unregistered partnership firm as well.
Less formal with fewer legal obligations:
The accounting process is generally simpler for partnerships than for limited companies.
The partnership business does not need to complete a Corporation Tax Return, but you’ll still need
to keep records of income and expenses.
Easy to get started:
The partners can agree to create the partnership verbally or in writing. There’s no need to
register with Companies House and registering the business partnership for taxation with HMRC
is quite simple.
Bridging the Gap in Expertise and Knowledge: Partnerships with someone can provide you
with access to a wider range of expertise for various parts of your business. Also, a good partner
may bring knowledge and expertise that you can lack, or complementary skills to help develop
the company.
More Cash: A prospective partner can bring an infusion of cash into the business. The person
may also have more strategic connections than you do. This may help your company attract
potential investors and raise more capital to grow your business.
Cost Savings: Finding a business partner will encourage you to share the financial burden of
expenditures and capital spending required to operate the company. This could lead to more
significant savings than going it alone.
Better decision-making
Compared with operating on your own, in a partnership the business benefits
from the unique perspective brought by each partner. In business, very often two heads
really are better than one, with the combined conclusion of debating a situation far
better than what each partner could have achieved individually.
Privacy
Compared to a limited company, the affairs of a partnership business can be
kept confidential by the partners. By contrast, in a limited company certain documents
are available for public inspection at Companies House and a
company’s shareholders can choose to inspect various registers and other documents
the company is required to keep.

Ownership and control are combined

In a limited company, ownership and day to day management of the business is
split between shareholders and directors (although they’re often the same people). That
can mean that directors are constrained by
Sharing the burden:
Compared to operating on your own as a sole trader, by working in a business partnership
you can benefit from companionship and mutual support.
Access to knowledge, skills, experience and contacts:
Each partner will bring their own knowledge, skills, experience and contacts to the business,
potentially giving it a better chance of success than any of the partners trading individually.
More partners, more capital:
The more partners there are, the more money there may be available from their combined
resources to invest into the business, which can help to fuel growth.
Prospective partners:
As a sole trader, while you can employ staff, it’s not really possible to bring someone on
board to manage the business alongside you. Employees will always believe you’ll be the one
running the business and good people may be demotivated if they feel, as far as their own career
is concerned, there’s “nowhere to go”.
Easy access to profits:
In a business partnership, the profits of the business are shared between the partners. They
flow directly through to the partners’ personal tax returns rather than initially being retained within
the partnership.
Better Work/Life Balance: A partner can also lighten the load by sharing the labour. It may
allow you to take time off when necessary, knowing there is a trusted person holding the fort. It
will affect your personal life positively.
Moral Support: Everyone has to be able to bounce off ideas or debrief about important
questions. And when we encounter setbacks, or have to cope with work and daily frustrations,
we may need moral support.
Potential Tax Benefits: A tax benefit can be a possible advantage for a general partnership.
Income taxes may not be paid by a general partnership. Instead, a general partnership "passes
through" any gains or losses to its members, as shown on the IRS Partnership website.

A Second Perspective:
One of the major advantages of a partnership is having someone on your level with a
different perspective, who can provide valuable input when making important decisions.
Fewer Formalities and Obligations:
Unlike limited liability companies and corporations, partnerships don’t need to be registered
with the Secretary of State. Most states legally recognize partnerships once they begin business
operations.
Financial Resources:
Partners can pool their resources and expand the financial base of a firm.
Talent can be pooled:
Partners can divide work among themselves, depending on their individual skills, and talents.
This helps the firm to grow quickly.
Flexibility:
Partners can carry out day-today activities in a flexible way. The nature and place of business
can be altered at will.
Reward for Effort:
Partners can work jointly and severally for improving business and get adequately rewarded.
Informed, Balanced and Careful Decisions:
Partners can bring their skills, knowledge, and expertise to the table. Since they are jointly
held responsible for losses, they are compelled to take a careful, cautious path.
Cooperation:
Partnership encourages mutual cooperation and trust amongst people.
Sharing of Risks:
Unlike sole proprietary organization, the risks of partnership business are shared by partners
on a predetermined basis.
Democratic Organization:
Every partner can participate in the operation of the business of a partnership firm.
More Possibility of Growth and Expansion:
As compared to a sole-trade business, partnership concern has more possibilities for
expansion and growth of business activities.
Secrecy:
 The accounts of a partnership firm are not required to be disclosed in the public domain as it
is done in case of a Joint Stock Company. Audit of accounts is not essential and no reports are
required to be filed with the government authorities.
More Funds:
In a partnership, the capital is contributed by a number of partners. This helps in raising
business and earning higher profits.
Balanced Decision-making:
Two heads are always better than one. The partners can oversee different functions
according to their areas of expertise.

Pooling of Financial Resources:

A partnership commands more financial resources as compared to a sole proprietorship.
This helps in expanding business and earning more profits.
Pooling of Managerial Skills:
A partnership facilitates pooling of managerial skills of all its partners. This leads to a greater
efficiency in business operations.
Direct Motivation:
Ownership and management of business are vested on the same partners making a direct
relationship between effort and reward. Every partner is motivated to work hard and to ensure the
success of the firm.
Better Management:
Every partner is expected to take personal interest in the affairs of the business. Different
partners can maintain personal contacts with employees and customers.
Protection of Minority Interest:
The management of partnership is democratic. Every partner has a right to be consulted and
can express his or her opinion. All important decisions are taken with the mutual consent of all the
Partners.
Balanced Judgment:
Partners among themselves provide various sorts of talent necessary for handling the
problems of the firm. This is an important advantage over the sole proprietorship organization.
Personal Supervision:
Partners look after the business personally and guard against wastage.
Reduced Risk:
The losses incurred by the firm will be shared by all partners and hence the share of loss of
each partner will be less than in case of sole proprietorship.
The Wholesome Influence of Unlimited Liability:
The principle of unlimited liability helps in two ways- First; the partners are not reckless
because they know that recklessness may put even their private property in jeopardy. Secondly, it
becomes easier to raise loans because there is an automatic security afforded to the creditor.

Personal Element:
The personal element in the business and the corresponding care, efficiency and economy
are ensured. There is thus an effective motivation to production.
Additional Funding:
An obvious advantage of a partnership over a sole proprietorship is the additional funding
that the partner or partners can provide.
Losses are shared:
Any business losses that the partnership incurs are spread across all of the partners. Thus,
a single person does not have to absorb the entire loss.
More Specialization:
With a partnership, partners can focus on their respective specializations and serve a wide
variety of customers. Greater specialization:
In partnership, the work and responsibilities are divided among partners. Similarly, since
the business is on large scale, division of labor can also be introduced.
Varied managerial ability:
The business of the partnership is managed by all partners thus the partners can contribute
their abilities and skills of management.
Personal interest in business:
Since each partner is responsible not only for his own acts but also the acts of his partners,
he is vitally concerned in every move made in business and takes personal interest in the affairs of
the firm.
Favorable credit standing:
The partnership has a credit standing which is even more favorable than a proprietorship as
the personal assets of partners are available to the creditors for the payment of debts.
More Cash:
A prospective partner can bring an infusion of cash into the business. The person may also
have more strategic connections than you do. This may help your company attract potential
investors and raise more capital to grow your business
Cost Savings:
Having a business partner would allow you to share the financial burden for expenses and
capital expenditures needed to run the business.
More Business Opportunities:
One of the advantages of having a business partner is sharing the labor. Having a partner
can not only make you more productive, but it may afford you the ease and flexibility to pursue
more business opportunities.
Better Work/Life Balance:

By sharing the labor, a partner may also lighten the load. It may allow you to take time off
when needed, knowing that there's a trusted person to hold the fort.
Moral Support:
Everyone needs to be able to bounce off ideas or debrief on important issues. And we may
need moral support when we encounter setbacks or have to cope with work and everyday
frustrations.
New Perspective:
It's easy to have blind spots about the way we conduct our business. A partnership can bring
in a set of new eyes that can help us spot what we may have missed. It may help us adopt a new
perspective.
Potential Tax Benefits:
A possible advantage of a general partnership may be a tax benefit. A general partnership
may not pay income taxes.
Easy Dissolution:
Dissolution of the partnership concern is very easy. The partnership can be dissolved on
the death, lunacy or insolvency of a partner.
Ownership and control are combined:
In a limited company, ownership and day to day management of the business is split between
shareholders and directors (although they’re often the same people). That can mean that directors
are constrained by shareholder preferences in pursuing what they see as the best interests of the
business.

Disadvantages
While there are lots of benefits of a partnership business, this model also carries a number
of important disadvantages.
The business has no independent legal status:
A business partnership has no independent legal existence distinct from the partners, it will
be dissolved upon the resignation or death of one of the partners.
Unlimited liability:
Again because the business does not have a separate legal personality, the partners are
personally liable for debts and losses incurred.
Perceived lack of prestige:
Like a sole trader, the partnership business model often appears to lack the sense of prestige
more associated with a limited company.
Limited access to capital:
While a combination of partners is likely to be able to contribute more capital than a sole
trader, a partnership will often still find it more difficult to raise money than a limited company.
Potential for differences and conflict:
By going into business as a general partnership rather than a sole trader, you lose your
autonomy.
Slower, more difficult decision making:
Compared to running a business as a sole trader, decision-making can be slower as you’ll
need to consult and discuss matters with your partners.
Profits must be shared:
At a basic level, while a sole trader retains all the profits of their business, those of a
partnership are shared amongst the partners.

Personally demanding:
Although there’s at least one other person to share the worry and workload with, in a
partnership business the partners still essentially are the business.
Taxation:
Historically, if the business made more than a certain level of profit, individuals could incur
less tax by withdrawing a combination of salary and dividends under a limited company than they
could via partnership drawings.
Limits on business development:
Several of the other disadvantages we’ve looked at combine to restrain the growth of most
partnerships. That won’t worry a lot of businesses with modest expansion expectations.
Limited Resources:
The firm can have limited doses of capital infused by partners. It is clearly unsuitable for
businesses that demand heavy investments. Beyond a point, a firm cannot expand its business.
Conflicts:
Partnership is built around trust and mutual confidence. When differences crop up, it is not
easy to iron them out.
Uncertain Future:
The firm will have to draw the shutters down in case of death, insolvency, lunacy of any
one of the partners. Transferability of Interest:
It is difficult to transfer the interest of one partner to an outsider unless all other existing
partners unanimously agree.
Public Interest:
A firm need not place its books to public scrutiny. It need not get its accounts audited. The
firm is not subjected to elaborate accounting and auditing rules and regulations from the
government. Not a Legal Entity:
A partnership firm has no legal entity separate from the members. It dies upon the death of
a partner or upon separation between them. Partners are responsible for all the debts of the firm.
Lack of Continuity:
Partnership is not considered to be a very stable form of business organization. This is
because the death, retirement, insolvency or insanity of any partner can bring the business to an
end.
Uncertainty of Existence:
The existence of a partnership firm is very uncertain. The retirement, death, bankruptcy or
lunacy of any partner can put an end to the partnership.
Risks of Implied Authority:
It is true that like the sole proprietor, each partner has unlimited liability. But his liability
may arise not only from his own acts but also from the acts and mistakes of co-partners over whom
he has no control.
Risks of Disharmony:
In partnership, since decisions are taken unanimously, it is essential that all partners
reconcile their views for the common good of the organization. But situations may arise when
some partners may adopt rigid attitudes and make it impossible to arrive at a common agreed
decision.
Difficulty in Withdrawal from the Firm:
Investment in a partnership can be easily made but cannot be easily withdrawn. This is so
because the withdrawal of a partner’s share requires the consent of all the other partners.
Lack of Institutional Confidence:
A partnership business does not enjoy much confidence of banks and financial institutions.
Lack of Prompt Decisions:
 All important decisions are taken by the consent of all the partners. So decision making
process becomes time consuming.
Absence of Professional Management:
Modern business needs the services of those who have acquired managerial skills and
render their services to business undertakings. In partnership firms, there is absence of professional
management.
Difficulties of Expansion:
It is difficult for a partnership firm to undertake modernization or expansion of its
operations because of its inability to raise adequate funds for the purpose.
Lack of Harmony:
The success of partnership depends upon mutual understanding and co-operation among
the partners. Continued disagreement and bickering among the partners may paralyze the business
or may result in its untimely death.
Non-Transferability of Interest:
No partner can transfer his share in the firm to an outsider without the unanimous consent
of all the partners. This makes investment in a partnership firm non-liquid and fixed.
Public Distrust:
A partnership firm lacks the confidence of public because it is not subject to detailed rules
and regulations.
Limited Risk-Taking:
The unlimited liability of a partner commits even his private property. Partners, therefore,
tend to play safe and pursue unduly conservative policies.
Instability:
The business is rather unstable, because anything that happens to a partner (death, lunacy
or insolvency) will often put an end to the partnership.
Social Loss:
Such an abrupt closure of business is harmful not only to its owners, but also to society
particularly if it has been successful and contributing to the well-being of the community.
Lack of Public Confidence:
The absence of legal regulations and the fact that there is no publicity in regard to a
partnership’s affairs reduces to some extent public confidence.
Heavy Burden through Implied Authority:
This may put a very heavy financial burden on the partners, which may, in some cases,
result in the ruin of a person.

Loss of Autonomy:
 While you likely enjoy being in total control of your business, in a partnership, you would
now share control with a partner and important decisions would be made jointly.
Emotional Issues:
A host of issues can surface that may make working with a partner difficult. For example,
conflicts can arise from differences of opinion or from unequal effort put into the business.
Future Selling Complications:
As circumstances change in the future, you or your partner may wish to sell the business.
This could present difficulties if one of the partners isn't interested in selling.
Lack of Stability:
When balancing the advantages and disadvantages of a partnership, you also need to
consider if you're able to cope with unpredictability. Even if you have a solid exit strategy in your
partnership agreement, the change triggered by a partner's situation can cause instability in the
business.
Disagreements:
There is a risk of disagreements and friction among partners and management.
Liability after Retirement:
In partnership form of business organization, the retiring partner continues to be liable for
all acts done when he was a partner. In the case of a company of limited liability, the liability of
the shareholder ceases immediately on the transfer of shares.
Uncertainty of duration:
A partnership suffers from a possible limited span of life. Legally, a partnership firm must
be dissolved on the retirement, death, bankruptcy, or lunacy of any partner or demanded by any
partner.
Risks of additional liability:
It is true that like the sole proprietor, each partner has unlimited liability. But his liability
may arise not only from his own acts but also from the acts and mistakes of co-partners over whom
he has no control.
Non-transferability of share:
The share of interest of any partner cannot be transferred to other partners or to the outsiders.