Page 49 - Cambridge IGCSE Business Studies

4: Types of business organisation

Partnerships
KEY TERM A partnership is a business owned and managed by two or more people. Partnerships
are often formed to overcome some of the disadvantages of sole traders.

Partnership: a business formed

This form of business organisation is popular with professions such as
by two or more people who will accountancy, law and dentistry.
usually share responsibility for
The main advantages of a partnership are:

the day-to-day running of the
business. Partners usually invest
■ Partnerships usually have greater access to finance than sole traders as there is
capital in the business and will
share profits. more than one person investing capital in the business.

■ Decision-making is shared and can often lead to better decisions.
■ The management and day-to-day running of the business is also shared, which
reduces the workload for individual owners.
■ It is easy to set up. The partners may sign a legal agreement known as a Deed of
Partnership. This document sets out the rights and obligations of each partner.
Partnerships have the following disadvantages:

■ The partners usually have unlimited liability for the debts of the business. They
may have to use their personal wealth to pay these if the partnership is not able
to do so.
■ The partners must share profits.
■ If one of the partners leaves then the business ceases to exist and will need to be
reformed if the other partners want to continue trading.
Sources of business
finance: see Chapter 19, ■ Business decisions are binding on all partners, even if they don’t agree to them.
47
page 246. ■ Partnerships are often fairly small businesses and, like sole traders, find it diff icult

to raise additional finance to expand the business.

Figure 4.3 Advantages and disadvantages of partnerships