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All 20 Flashcards — Partnerships
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Question
Define a partnership.
Answer
A partnership is a business owned by two or more people who share profit, risk and decision-making.
💡 Hint
Definition: 2+ owners + shared profit/risk/decisions.
Question
Explain one advantage of a partnership over a sole trader.
Answer
A partnership can raise more finance because multiple partners can contribute capital, which can fund growth or investment more easily than one person alone.
💡 Hint
Make the comparison explicit: better THAN sole trader.
Question
State two features of a partnership (exam-ready).
Answer
(1) Owned by two or more partners who share profits. (2) Partners typically have unlimited liability for the partnership's debts.
💡 Hint
Keep it short: 2 bullet-style points.
Question
Quick summary: What is a partnership in one sentence?
Answer
A partnership is a business owned by two or more people who share profit, risk and decision-making, usually under a deed of partnership.
💡 Hint
One sentence = definition + deed.
Question
State two features of a partnership.
Answer
Two or more owners (partners) share profits, and partners typically have unlimited liability for the partnership's debts.
💡 Hint
Features = what it IS (not advantages). Give 2 clear points.
Question
What is the biggest financial risk for partners?
Answer
Unlimited liability: personal assets may be used to pay partnership debts, including debts caused by other partners.
💡 Hint
Name the risk + consequence.
Question
Give one disadvantage of a partnership.
Answer
Partners have unlimited liability and may be liable for debts caused by another partner's decisions, increasing personal risk.
💡 Hint
Key idea: responsible for others' actions too.
Question
What is the role of a deed of partnership in exam answers?
Answer
It sets clear rules (profit share, roles, capital, dispute resolution, exit rules), reducing misunderstandings and helping resolve conflicts between partners.
💡 Hint
Role = prevents/solves conflict by setting rules.
Question
What is the key benefit of partnerships vs sole traders?
Answer
More resources: partnerships can combine capital and skills, enabling growth and better decision-making than a sole trader relying on one person.
💡 Hint
Capital + skills = the safe combo answer.
Question
Define an active (general) partner.
Answer
An active (general) partner is involved in running the business day-to-day and usually has unlimited liability.
💡 Hint
Active = manages day-to-day.
Question
What is a common exam mistake when asked about partnerships vs sole traders?
Answer
Students describe the partnership but forget to compare explicitly to the sole trader, so they lose application marks.
💡 Hint
Use the phrase: than a sole trader.
Question
What does unlimited liability mean in a partnership?
Answer
Unlimited liability means partners are personally responsible for the partnership's debts, so personal assets can be used to pay creditors.
💡 Hint
Use the phrase: personal assets at risk.
Question
What is a deed of partnership?
Answer
A deed of partnership is a legal agreement that sets out how the partnership will operate, such as profit shares, roles, capital contributions, and how disputes or exits are handled.
💡 Hint
Think: rules document for partners.
Question
Define a sleeping (silent) partner.
Answer
A sleeping (silent) partner invests capital but does not take part in daily management; they still usually have unlimited liability.
💡 Hint
Sleeping = invests, no management, still risky.
Question
Sleeping partner vs limited partner: what is the difference?
Answer
A sleeping partner does not manage but usually still has unlimited liability. A limited partner has limited liability but cannot manage the business.
💡 Hint
Sleeping = no management. Limited = limited liability.
Question
Give an exam-style explanation of one advantage of a partnership.
Answer
Access to more skills: partners can specialise (e.g. one handles finance, one marketing), improving decisions and performance compared with one sole trader doing everything.
💡 Hint
Mechanism + comparison = strong marks.
Question
In one line, what does a deed of partnership help prevent?
Answer
It reduces disputes by clearly stating rules for profit sharing, roles, decision-making, and what happens if a partner leaves.
💡 Hint
Clear rules → fewer conflicts.
Question
Give an exam-style explanation of one disadvantage of a partnership.
Answer
Disagreements can slow decisions and damage relationships, reducing efficiency; conflicts may arise over workload, strategy, or profit share.
💡 Hint
Use: conflict → slower decisions → lower performance.
Question
Define a limited partner.
Answer
A limited partner can only lose the amount invested (limited liability) but is not allowed to manage the business.
💡 Hint
Limited = limited liability + limited control.
Question
Give one example of shared decision-making in a partnership.
Answer
Example: partners vote on whether to expand (open a second outlet) and agree how to fund it, rather than one person deciding alone.
💡 Hint
Use an operations/finance decision example.
Read the notes
Full study notes for Partnerships
Topic 1.2 hub
Types of business entities
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BM exam skills
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