PARTNERSHIPS - Business Studies



PARTNERSHIPS

Case Study: Trevor Lund’s business had gone well. He was a sole trader who imported olive oil from Israel in 10 litre cans. He sold it on a market stall in Cambridge. As time went on he started to sell other products such as speciality cheeses, olives and breads. He opened a small shop and then wanted to expand further. His best friend was Chip Gifford. Trevor knew it was a risk, but asked Chip to become a partner in the firm. Look at the following two scenarios that show what might have happened.

The advantages of being a partnership

Using scenario 1, explain the following advantages of being a partnership. Give examples, using your imagination, to develop the skills and characters of Trevor and Chip. Write as much as you can.

1. Partners can bring different skills to the business

2. Partnerships find it easier to raise money to develop the business.

3. Partners can help each other with decisions, and keep each other’s spirits up when things go wrong.

Scenario 2 (above) could have been avoided if Trevor and Chip had drawn up a Deed of Partnership. This legal document will stop Partners from falling out and having disagreements over the basic business rules. This is one of the main disadvantages of being a partnership.

Complete the following list of things that Trevor and Chip could have put in their Deed of Partnership.

1. How the profit of the business will be shared out between partners.

2. How many hours each partner will work each week.

|3. |Who will be responsible for which aspect of the business. |

|4. |What will happen if one of the partners wishes to leave the business. |

|5. |Who will have the authority to spend money for the business. |

|6. |How decisions concerning the running of the business will be decided. |

|7. |What will happen if partners fall out and want to continue the business on their own. |

Remember that a partnership can have between 2-20 partners, and at least one partner must have unlimited liability. This usually means that all partners decide to have unlimited liability.

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Scenario 1

Trevor Lund and Chip Gifford were today named as young business people of the year. Their business has a turnover of £150 million. ‘We get on well, trust each other, and have skills that complement each other’ said Chip.

Scenario 2

The court case ended today with Trevor Lund being found not guilty of the attempted murder of Chip Gifford. Both men say that it was the dishonesty of the other that caused the failure of their business, and the loss of over £1 million.

Trevor was a good salesman, but had little organisational skill. He was great at having ideas, but awful at keeping records and spending money wisely. Chip was the opposite. He hated selling and would rarely have an original idea, but he kept accurate records and was disciplined enough to stick to budgets. The skills of the two combined well and made the business a success.

Trevor had a little money of his own, but not enough to make a difference to the business. The bank was not keen on lending him much, because he was considered to be too much of a risk. When he brought Chip in as a partner, this had two advantages when it came to raising finance. Firstly Chip had some money of his own to invest, and secondly the bank was much more receptive to the idea of lending to them.

There is an expression ‘two heads are better than one’. This was certainly true of Chip and Trevor. They would help each other to make the right decision. Trevor would have lots of ideas, but Chip was always able to point out disadvantages. Chip nevertheless kept Trevor going when he wanted to pack it all in.

Possible Answers

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