Partnership Firm – Need & Importance
Here We will discuss what is the need and importance of the partnership firm.
Types of Business Firm
| Video Lecture | Link |
| Partnership Firm – Need & Importance | Click Here |
Individuals have many firm formats to run a business under it.
For example:-
1. Sole Proprietorship Firm
2. Partnership Firm
3. Hindu Undivided Family
4. Private Limited Compay
5. Public Limited Company
The simplest form of a Business firm is the proprietorship.
But Proprietorship has a few limitations when one wants to scale the business.
Limitations of Proprietorship Firm
- One Man Invests Capital
- Undertakes the risk involved in the business
- Controls the whole affairs of the Business.
But, when a business requires huge capital, skill, and manpower. Generally proprietorship firm is not a good decision.
The second best form of a Business firm is the Partnership Firm.
Importance of the Partnership Firm
The following are the advantages of a partnership firm over a proprietorship firm.
Easy Formation:-
The Partnership firm is easy to form. There are no legal awkward low and customs to fulfill.
Even the registration of a Partnership Firm is not obligatory.
What is required is an understanding among the partners, expressing the terms, conditions and states of a business.
Even it is not necessary to have this agreement in writing.
Large Capital and Credit Resources:-
As there are several partners, the capital gathered is more as compared to the sole proprietorship.
Apart from it, the credit a partnership firm can attract is also much more.
Distribution of rights and duties:-
Division of work and specialisation increases the efficiency of the firm.
Risk Distribution:-
The Risk and losses are distributed in the several partners.
Thus Partnership firm is much better as compared to running a big business via sol-proprietorship.
Practice Questions:-
Manish is running a restaurant. His recipes are popular in his city. Through social media, he became much more popular in the whole country. For now, he wants to expand his restaurant chain in his own state. Two of his cousins want to join his business. Both will contribute capital. One of his cousins is an expert in sales and marketing. Which form of business will be best for this business with minimal legal hurdles?
a) Partnership
b) Hindu undivided family
c) Pvt Ltd company
d) Proprietorship
Ans:- a)
the legal hurdles are minimum in partnership firm.
Which is the simplest type of the Business Firm
a) Partnership Firm
b) Proprietorship Firm
c) Private Ltd Co.
d) Hindu Undivided Family
Ans:- b)
The simplest form of the business is proprietorship.
Which is the second best form the Business firm :
a) Public Limited Co.
b) Private Ltd Co.
c) Partnership Firm
d) Proprietorship Firm
Ans:- c)
the legal hurdles are minimum in partnership firm.
Which of the following best explains why partnership firms are easier to form compared to proprietorship firms?
a) Partnerships require mandatory registration
b) Partnerships need government approval before formation
c) Partnerships can be formed through mutual agreement, even without legal formalities
d) Partnerships require shareholders to file incorporation documents
Ans:- (c)
the legal hurdles are minimum in partnership firm.
How does the presence of multiple partners impact the capital of a partnership firm?**
a) It restricts capital investment opportunities
b) It allows more capital to be pooled compared to sole proprietorships
c) It reduces financial flexibility for growth
d) It minimizes the availability of funds for expansion
Ans:- (b)
the legal hurdles are minimum in partnership firm.
In what way does the division of work among partners benefit a partnership firm?**
a) It leads to increased financial losses
b) It enhances efficiency through specialization
c) It creates conflicts and reduces productivity
d) It limits the scope of business operations
Ans:- (b)
the legal hurdles are minimum in partnership firm.
Why is risk distribution considered an advantage in a partnership firm?
a) The risk is entirely borne by one managing partner
b) Partners can transfer risk to external investors
c) Losses and risks are shared among multiple partners
d) Risks are eliminated due to legal protection
Ans:- (c)
the legal hurdles are minimum in partnership firm.
What role does credit availability play in making partnerships more financially viable compared to sole proprietorships?
a) It limits access to financial institutions
b) It allows partners to individually secure loans
c) It increases overall creditworthiness due to multiple owners
d) It restricts borrowing power due to shared responsibilities
Ans:- (c)
the legal hurdles are minimum in partnership firm.
Which of the following is NOT a characteristic of partnership firms regarding their legal requirements?
a) Registration of a partnership firm is not mandatory
b) A written agreement between partners is required by law
c) Partnership firms operate based on mutual consent
d) Partners can formulate their own terms without legal obligations
Ans:- (b)
the legal hurdles are minimum in partnership firm.
How does specialisation among partners affect decision-making in a partnership firm?
a) It complicates operations and delays decisions
b) It enhances expertise and efficiency in different business functions
c) It results in individual partners working independently with no communication
d) It increases financial instability in the firm
Ans:- (b)
the legal hurdles are minimum in partnership firm.
Compared to sole proprietorships, how does a partnership firm manage business expansion more effectively?
a) Partnerships attract higher capital investment
b) Sole proprietors have stronger financial backing
c) Partnerships are restricted to small-scale business models
d) Sole proprietorships have better loan accessibility
Ans:- (a)
the legal hurdles are minimum in partnership firm.
Which of the following best describes the distribution of rights and responsibilities in a partnership firm?**
a) All partners have the same duties irrespective of their roles
b) Responsibilities are divided based on expertise and mutual agreement
c) Only one partner is responsible for decision-making
d) Ownership is centralised under a single individual
Ans:- (b)
the legal hurdles are minimum in partnership firm.
Why is a partnership firm considered more suitable for large business operations compared to a sole proprietorship?**
a) Partnerships have the ability to gather larger financial resources
b) Sole proprietors can hire more employees than partners
c) Partnership firms face more legal restrictions than sole proprietorships
d) Sole proprietorships are better structured for expansion
Ans:- (a)
the legal hurdles are minimum in partnership firm.
Fundamentals of Partnership firm chapter free video lectures notes pdf
| S.N | Topics | Lectures link |
| 20. | Provisions relating to Interest on capital in Partnership | Click Here |
| 21. | Difference between drawings against capital and drawings against profit | Click Here |
| 22. | Methods to Calculate Interest on Capital | Click Here |
| 23. | Methods to Calculate Interest on Drawings | Click Here |
| 24. | Net Profit after charging such commission concept clarity | |
TS Grewal Solutions Fundamentals of Partnership
| S.N | Books | link to Solutions |
| 1. | TS Grewal (2023-24) | Click Here |
| 2. | TS Grewal (2022-23) | Click Here |
| 3. | TS Grewal (2021-22) | Click Here |
