Is a partnership the best form of business organisation for a new business? Justify your answer.
CAMBRIDGE
O level and GCSE
Year Examined
May/June 2022
Topic
Business Structures
👑Complete Model Essay
Do you think a partnership is the best form of business organisation for a new business?
Partnerships, where two or more individuals share ownership and responsibility of a business, offer several advantages for new ventures. However, like all business structures, they come with potential drawbacks. Whether a partnership is the “best” option depends on the specific circumstances of the business and the individuals involved.
One key benefit of a partnership is the ability to share the workload and responsibility. For example, if one partner has a strong marketing background, they could focus on promoting the business while another with financial expertise manages the accounts. This specialization can lead to greater efficiency and potentially faster growth compared to a sole trader who manages all aspects alone. Furthermore, the pooling of skills and experience can make the business more competitive. For instance, if one partner has established contacts in the industry, it can give the new business a significant advantage.
However, partnerships also carry the risk of disagreements and slower decision making. While different perspectives can be valuable, conflicting opinions on business strategy can lead to delays or, in worse cases, paralysis. This can be particularly problematic in fast-moving markets where responsiveness to changing consumer demand is crucial. Additionally, profits must be shared among partners, which may not be ideal for individuals seeking to retain complete control over their earnings.
While partnerships carry the risk of unlimited liability, so too do sole proprietorships. Both structures put personal assets at risk if the business incurs debt it cannot repay. However, a key advantage of a partnership in this context is the shared risk. Having multiple individuals liable can make it easier to secure loans or attract investors compared to a sole trader with sole responsibility for debts.
In conclusion, while not definitively the "best" option in all situations, a partnership offers a number of advantages for new businesses. The ability to share workload, pool skills, and spread risk can support growth and increase the likelihood of success. However, potential entrepreneurs must weigh these benefits against the potential for disagreements, slower decision-making, and the implications of unlimited liability. Ultimately, the best business structure depends on the specific circumstances of the venture and the individuals involved.
Is a partnership the best form of business organisation for a new business? Justify your answer.
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Do you think a partnership is the best form of business organisation for a new business?
Partnerships, where two or more individuals share ownership and responsibility of a business, offer several advantages for new ventures. However, like all business structures, they come with potential drawbacks. Whether a partnership is the “best” option depends on the specific circumstances of the business and the individuals involved.
One key benefit of a partnership is the ability to share the workload and responsibility. For example, if one partner has a strong marketing background, they could focus on promoting the business while another with financial expertise manages the accounts. This specialization can lead to greater efficiency and potentially faster growth compared to a sole trader who manages all aspects alone. Furthermore, the pooling of skills and experience can make the business more competitive. For instance, if one partner has established contacts in the industry, it can give the new business a significant advantage.
However, partnerships also carry the risk of disagreements and slower decision making. While different perspectives can be valuable, conflicting opinions on business strategy can lead to delays or, in worse cases, paralysis. This can be particularly problematic in fast-moving markets where responsiveness to changing consumer demand is crucial. Additionally, profits must be shared among partners, which may not be ideal for individuals seeking to retain complete control over their earnings.
While partnerships carry the risk of unlimited liability, so too do sole proprietorships. Both structures put personal assets at risk if the business incurs debt it cannot repay. However, a key advantage of a partnership in this context is the shared risk. Having multiple individuals liable can make it easier to secure loans or attract investors compared to a sole trader with sole responsibility for debts.
In conclusion, while not definitively the "best" option in all situations, a partnership offers a number of advantages for new businesses. The ability to share workload, pool skills, and spread risk can support growth and increase the likelihood of success. However, potential entrepreneurs must weigh these benefits against the potential for disagreements, slower decision-making, and the implications of unlimited liability. Ultimately, the best business structure depends on the specific circumstances of the venture and the individuals involved.
Extracts from Mark Schemes
Do you think a partnership is the best form of business organisation for a new business? Justify your answer.
Award up to 2 marks for identification of relevant points. Award up to 2 marks for relevant development of points. Award up to 2 marks for justified decision as to whether a partnership is the best form of business organisation for a new business.
Points might include:
Partnership:
- Share workload/responsibility which could allow time for each partner to focus on different business activities.
- More ideas/skills which could help make the business more competitive.
- Can share any potential loss/risks.
- Unlimited liability - personal possessions at risk if unable to pay business debts.
- Risk of disagreements/slow decision making so less responsive to changes in customer demand.
- Must share any profits made.
Other options might include:
Sole traders
- It’s simple/very little paperwork required to set up.
- Require limited start-up capital.
- Make all the decisions/has total control of the business.
- Keep all the profit.
- Limited access to finance.
Justification might include:
A partnership allows owners to share workload which could allow time for each partner to specialize in certain activities to improve the business. The main problem is unlimited liability which means they could lose personal possessions if unable to pay business debts. However, a partnership is a better choice than starting up as a sole trader. While there is still unlimited liability, it is possible to share some of the risk with others if you can work together.
Extra skills can help reduce potential problems, which could increase the chances of success.