Advantages And Disadvantages Of Partnership

Table Of Contents

1. Meaning Of Partnership
2. Features Of Partnership
3. Advantages Of Partnership
4. Disadvantages Of Partnership

Meaning Of Partnership

It is a business unit that is owned and run by two or more persons. Partners contribute money into a purse for selling up and rumming the business, in order to make profit. It is legally defined as a relationship which exists between persons, carrying on business in common, with a view to make a profit. It is a joint venture between two or more person called partners. They share profit and losses, in accordance to the terms and conditions stated in their partnership agreement, also known as partnership deed.

There are three typical classifications of partnership which are, general partnership, limited partnership and industrial partnership.

Features Of partnership

1. It has a minimum membership of 2 and maximum of 10 (for bank).

2. It Has Legal Entity: i.e it can be sued in court of law for possible breach of relationship.

3. The partners do not have limited liability except the limited partnership.

4. It is registered in accordance to the Partnership Act.

5. Partnership share profit and loss equally except when there is a particular method stated in the Deed Partnership.

6. No Legal Formalities: Its formation may or may not require legal formality. It can come into existence through an oral agreement.

7. Partners do not receive salary, but they share profit.

8. It Enjoys Privacy: Its affair are not published in the national dailies. Partnership is dominated by professional people. That is, it is mostly formed by educated people or those with special skills like, lawyers, medical personnel, auditors, builders, artisans, etc.

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Advantages Of Partnership

1. Large Capital: It is possible to raise a large capital through contributions of money by many people( the partners). Partnership easily borrows money from bank, on better terms than a sole trader.

2. Better Decision: Two good heads are better than one. Decisions made by many people are likely to be better than that of a single person.

3. Continuity Of Existence: Partnership ensure continuity of existence of a business. The death of one partner cannot lead to the collapse of the business as other partners can still sustain it.

4. Better Management/Sharing Of Responsibilities: The partners share management functions or responsibilities based on areas of specialization.

5. Privacy: The affairs of the business are not made known to the public. They are not obliged by law to publish their affairs or annual balance sheet in the national dailies.

6. Each partner has an equal right to participate in the management and control of the business.

Disadvantages Of Partnership

1. Inadequate Capital: The partners may not be able to obtain a large sum of money with which to set up and run big enterprise.

2. Delay In Decision Making: There may be delay in decision making and altering them in line with the prevailing-situation as every partner has to be consulted.

3. Unlimited Liability: Limited liability is not accorded or extended to every partner. This restrains the general or active partner from taking much risk.

4. Lack Of Legal Entity: A partnership does not enjoy the privilege of legal entity. Thus, workers, clients etc, can sue the partner if they are treated with contempt.

5. Misunderstanding And Death Of An Active Partner: Certain arguments and disputes (quarrels) between the partners or death of an active partner can cause the collapse of the business.

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