Question

Two friends, Anandita and Rukhsana, started a business based on a verbal understanding. Anandita invested ₹ 20,00,000 and Rukhsana invested ₹ 30,00,000 in the business. They agreed to share the financial outcomes of the business equally, despite contributing unequal amount of capital.

1. Identify the form of business set up by Anandita and Rukhsana. [1]
2. Anandita and Rukhsana agreed to share the financial outcomes of the business equally. Which feature of this form of business is highlighted here? [1]
3. Examine one probable risk of starting a business based on a verbal understanding. [1]
4. If Anandita decides to leave the business in future, can Rukhsana continue the business in the same form? Justify your answer by giving a reason. [1]

Answer 1

1. A partnership is the type of business. It entails Anandita and Rukhsana joining together to manage a firm and provide funding.
2. Sharing of Profits and Losses is the element that is being emphasised here. An agreement establishes the profit-sharing ratio in a partnership. The “Agreement” (Contractual connection) aspect is also clear because they decided to share equally in spite of uneven capital.
3. The absence of legal evidence in the event of future conflicts is a significant concern associated with verbal understanding. In the absence of a formal “Partnership Deed,” it becomes challenging to demonstrate in court the terms of profit sharing, capital interest, or obligations, which could result in litigation and the firm's dissolution.
4. No, Rukhsana is unable to carry on with the business in the same manner.
   Reason: A partnership needs two people at the very least. Since a single person cannot create a partnership, the partnership is instantly dissolved if Anandita departs. Rukhsana will be able to carry on with the firm, but it will become a sole proprietorship instead of a partnership.