Question

Kathy Lentz, Rob Snyder, and Tom Rohm were all general partners in a consulting business. Each partner owned one-third of the business. The partnership agreement stated that all three partners must approve vouchers for payments in amounts exceeding $5,000. While Tom was on vacation, Kathy and Rob decided to purchase a new computer system costing $6,800. A voucher was prepared and Rob signed both his and Tom's name. Kathy signed her name and gave the voucher to the accounts payable clerk, who wrote the check for $6,800.

Question 1) State any circumstances that would warrant deviation from this policy.

Question 2) Discuss the disadvantages of the partnership form of business ownership

Answer 1

Answer(1)- General Partners-

These are the partners who have unlimited liability in the partnership firm and they are active in day to day operations of the business.

In the partnership, all the partners have same right and duties. So any purchase that is made above a certain amount should be approved by all the partners in the partnership firm. Any purchase made above $5000, should be signed and approved by all the partners. All partners' consent should be there. No partner should sign on behalf of other partner.

Answer(2)-

The circumstance is If the voucher is of very less amount that can be neglected then no need to sign it by all the partners.

Answer(3)- Disadvantage of Partnership of Business ownership-

1. General partners in partnership firm have unlimited liability, they have to pay the debt from their own pocket at the time of crisis. If a partner takes wrong decision, it can lead other partners into losses.
2. Each partner has the similar right so if any partner does not agree with other partner, there may be conflict between them.
3. Partnership firm does not exist for long period, it has to wound up or liquidated after a certain period of time.
4. If a new partner joins or leaves, you have to calculate the amount of capital, Goodwill etc. that can be costly.