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Introduction to business Section E Case study 5 Read the case given below thoroughly and answer...

Introduction to business

Section E
Case study 5
Read the case given below thoroughly and answer the questions.
Noor and Sara had been friends for a long time. The friends shared a common interest in fashion design. They decided
to start a boutique together. They decided to combine capital of OMR 1000. Also, they borrowed a loan of 10000 OMR
from Bank Muscat. Both took an active role in managing the business. The boutique was profitable in the beginning.
More customers were visiting the place and promoting the shop to their friends as well. Noor was very proud and
thought she was the main reason for business success. She became careless about the agreement. She started wasting
the business money for her personal spending without any permission from Sara. Noor was not cooperative so they
were fighting most of the time. Most of the customers' orders were finished late. The business started to lose gradually
so they found themselves losing their valuable customers and having more expenses. They were not able to cover the
expenses and not able to pay the loans on time. Unfortunately, they decided to end the contract and close the
boutique.
Questions:
a) Explain the type of business ownership and discuss problems associated with this form of business as mentioned in the case .


b) Explain any three important points to be considered in this type of business agreement.

C) ldentify who should return the loan to the bank after the business loss. Discuss with reasons.

Solutions

Expert Solution

(a) This is a General Partnership type of business because here's relationship between both the persons for the purpose of business of boutique, where they have agreed to share the profits of a business carried on by all or any of them acting for all.

Problem associated with General Partnership business is:

1) In General Partnership the partners are entitled contribute equally to the losses sustained by the firm. Ie. During the case of dissolution of firm.

2) A partner shall indemnify the firm or any loss caused to it by his willful neglect in the conduct of the business of the firm.

3) And Every partner shall also indemnify the firm for any loss caused to it by his fraud in the conduct of the business of the firm.

(b)

1) There should be an agreement between the parties for the line-up and kind of business take place in the name of the firm.

2) There should be agreement to share the profits of the business.

3) There should be agreement for liability( if limited or otherwise) during the case of wind up of business.

4) The agreement for the payment of salary to the partners, interest on capital.

C) Noor and Sara both will be held liable in case of dissolution of firm both the partners held for the repayment of loan in the proportions in which they were entitled to share profits.

But Noor would be held liable to the firm and to the sara, for the compensation of loss that has incurred because of her willful negligence.


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