Advantages and Disadvantages of Partnership

Partnership Advantages

The following are the Partnership Advantages:

  1. Procurement of Resources: The partnership form of organisation enjoys large resources than a sole proprietorship so that the scale of operation can be enlarged to get the benefit of large-scale economies. More partners can be taken into partnership if capital needs are large. The partnership firms can also arrange money from the outside sources.
  2. Risk Sharing: Any loss sustained by the firm will be borne by all the partners equally with the benefit that the burden borne by each partner will be much less whereas the sole proprietor has to bear the entire loss of the business.
  3. Two more persons are better than one person.
  4. You’ll have greater borrowing capacity
  5. High-calibre employees can be made partners
  6. There is opportunity for income splitting, an advantage of particular importance due to resultant tax savings
  7. Partners’ business affairs are private
  8. There is limited external regulation

partnership advantages

Disadvantages of a Partnership

The following are the partnership Disadvantages of organisation:

  1. Limited Resources: It is very difficult for a single businessman to make more capital.
  2. Instability: The partnership form of organisation may come to an abrupt end on the death, lunacy or insolvency of the partner. The partnership may also be closed if a single partner expresses his desire to dissolve the partnership or to get it dissolved by the order of court on account of wrongful act of one or more other partners. The lack of trust among the partners may lead to dissolution of the firm.
  3. Lack of Public Faith: As the partnership concern is not subject to any regulation and no legal formation and functioning, the people have less faith in such organisation coupled with the fact that every now and then people listen to the dissolution of such partnership concerns. Moreover, people are note aware of the exact position of the business of the partnership, the reason is that the accounts of partnership concerns are not published.
  4. Restricted Enterprise: As the unlimited liability covers even the private fortune of the partners, the partners are bound to be over cautious. This restricts enterprise. In fact, the liability of individual partner may be regarded as excessive for most purposes. Therefore, the partnership form of business organisation tends to be useful only for small scale business, such as retail trade, a modern sized mercantile house or a very small manufacturing business.
  5. Restriction on Transfer of Interest: In partnership, no partner can transfer his interest to the third party. If he wants to do so, he will have to seek the consent of all the other partners. This restricts the liquidity of his investment. In case of a company, any shareholder can transfer his shares to the third party without the consent of other shareholders.
  6. Loss to the Society: The abruptly closure of the firm is a loss not to the firm but also to the society as a whole because the society is deprived of its products and some workers become out of job.
  7. Burden of Implied Authority: This may put heavy burden on the partners which may ruin the financial position of partners and may lead to the closure of the firm.
  8. Liability after Retirement: In conclusion it can be said that the partnership form of organisation is suitable where the size of business is relatively small and the capital requirements are not high. This form of business organisation is most popular among lawyers, chartered accountants, doctors, solicitors and estate agents.