I n t e r a c t I v e t e X t foundations in Accountancy/ acca financial accounting (ffa/FA) bpp learning Media is an acca approved Content Provider

 

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Like sole traders, partnerships are not separate legal entities from their owners. To overcome the 

problematic risk factors associated with unlimited personal liability for the debts of the business a new 

form of LLP has been created in some countries.  

As with sole traders, partnerships must maintain financial records and produce financial accounts. 

However, there is no legal requirement to make these accounts publicly available, unless the partnership 

has LLP status. 

2.4.1 Advantages of partnerships 

(a) 

Less stringent reporting obligations – no requirement to make financial accounts publicly 

available, no audit requirement, unless the partnership has LLP status 

(b) 

Additional capital can be raised because more people are investing in the business 

(c) 

Division of roles and responsibilities and an increased skill set 

(d) 

Sharing of risk and losses between more people 

(e) 

No company tax on the business (profits are distributed to partners and then subject to personal 

tax) 

2.4.2 Disadvantages of partnerships 

(a) 

Partners are jointly personally liable for all debts (unlimited liability) unless they have formed an 

LLP 

(b) 

There are costs associated with setting up partnership agreements 

(c) 

There may be issues of continuity of business in the event of death or illness of the partners 

(d) 

Slower decision making due to the need for consensus between partners 

(e) 

Unless a clause is written into the original agreement, when one partner leaves, the partnership is 

automatically dissolved and another agreement is required between existing partners 

2.5 Limited liability companies 

Limited liability companies are incorporated to take advantage of 'limited liability' for their owners 

(shareholders). This means that, while sole traders and partners are personally responsible for the 

amounts owed by their businesses, the shareholders of a limited liability company are only responsible