As well as every kind of business partnership business has a great role in a country’s economy. There are some certain advantages and disadvantages of partnership business which are describe in detail below:
Advantages and disadvantages of partnership business
We will describe both advantages and disadvantages of partnership business but first some most common advantages of the partnership business organization are given below:
Advantages of partnership business
- Easy formation: It is fairly easy to start partnership because it involves a private contractual arrangement. The cost of starting a partnership is low. It usually involves only modest legal fee for drawing up a written agreement, which is highly desirable.
- Combined managerial skill: In a partnership, people with different talents and skills may join together. Combining these skills could provide a greater chance of success.
- Sharing of risk: Sharing of risk is another important advantage of partnership business. The partners can share the risk of the business with each other.
- Tax advantages: partnership a generally have a tax advantage. Partnership business pays less income tax and do not pay a tax on their profits. However, each partner must pay an income tax on his share of profits.
- Better public relation: The partners may look after the needs of the consumers. As a result they can easily develop cordial relations with all interested groups such as employees, customers and society as a whole.
- Sufficient capital: In a partnership, the amount of capital may increase significantly. A person with a good idea but little capital can look for a partner with the capital or credit standing to develop and marketing the idea.
- Facilities of loan: The partners can enjoy the facilities of loan.
- Facilities of division of labor: For the smooth running of business, all the works are divided among the partners with a view to enjoying the facilities of division of labors.
- Freedom from governmental regulations and restrictions: Partnership business is merely free form governmental regulations compared to Joint Stock Company.
- Reduces autocracy: All the partners of a partnership business usually take part in the management and administration of the business. This practice reduces autocracy.
Disadvantages of partnership business
As I said before there are some advantages and disadvantages of partnership business. In the first section we described advantages of partnership business now we will discuss disadvantages in partnership business:
- Unlimited liability: According to law each member of the partnership has an unlimited financial liability for all the debts of the business. Each partner is liable for his share of the business debts.
- Investment withdrawal difficult: A person who invests money in a partnership may have a hard time withdrawing the investment. The money, typically considered a “frozen investment” is tied up in the operation of the business.
- Instability: The life of partnership is uncertain. If a partner dies or withdraws from the business, the partnership is dissolved. A new partnership or some other from of business organization must be legally established.
- Lack of trust and confidence: Lack of trust and confidence is another vital disadvantage of partnership business. The successful working of a partnership business depends on mutual thus an confidence of its partners.
- Lack of secrecy: In some kinds of business the success of the business depends upon a secret process formula. But sometimes we find lack of secrecy in the partnership business.
- Difficulty in decision-making: There can also be some difficulties indecision making because there is always a danger of disagreement among partners. If the majority of the partners may want to change the nature of business they are unable to do so because of the refusal of one partner.
- Obstacles in the transfer of share: There are some obstacles in the transfer of shares. A partner is not entitled to transfer his rights to a third party without the consent of the other partners.
- Delay in decision-making: Delay in decision-making is another important disadvantage of partnership business. In emergencies, a partner cannot make decision alone. He has to consult with the other partners of the business. So, if there is a desire to make a change, they cannot do so quickly.
- Risk of joint responsibility: In partnership business there are also some risks of joint responsibility. Every partner has to take the risk for running the business smoothly.
- Lack of legal base: The registration of partnership business is not compulsory in our country. They may or may not be registered. So the lack of legal base is the disadvantage of partnership business.
Other Content of Partnership Business:
- What is a Partnership Business?
- Elements of Partnership Business
- Different Types of Partnership Business
- Features / Characteristics of Partnership Business
- Importance of Partnership Agreement
- Contents of Partnership Agreement
- Different Kinds of Partners
- Registration of Partnership Business
- Consequences / Effects of Partnership Registration
- Dissolution of Partnership Business