Partnership Advantages And Disadvantages: A partnership is a form of business in which all the owners have personal liability and authority for the operations of the business. The partners of the business invest their funds and time in the business and share the profits proportionally. A partnership business is run by two or more people who combine their resources to start the business and agree to share risks, profits and losses.
The partnership may be limited to the contribution of funds but not taking part in day-to-day operations of business. This type of partnership is called limited partnership. In case of general partnership, each partner is responsible for business functions and legal and financial liabilities. In case of limited partnership, there can also be a designated general partner in the business who takes care of operations as an active manager and has essentially the same liabilities as a sole proprietor.
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What is Partnership? Advantages and Disadvantages of Partnership 2022
Partnership is a type of business venture when two or more owners provide their resources into the business and agree to share the profits and losses. The partners are involved into an alliance to work together in managing and developing the business. The co-owners enter into a contractual agreement to run the business, distribute responsibilities, and share the income or losses as generated by the business. The different types of partnership are limited partnership, general partnership, and limited liability partnership.
A partnership business allows more funds inflow as compared to sole ownership as the resource requirement is taken care of by different partners. A partnership business has the opportunity to utilize the combination of experiences, knowledge, and skills of different partners in running the business successfully. A partnership firm can be established easily without much cost involvement. The partners enjoy flexibility in implanting any changes as required without involvement of any external influences or regulations.
- Advantages of Partnership
- Disadvantages of Partnership
- Comparison Table for Advantages and Disadvantages of Partnership
- FAQ’s on Partnership Advantages And Disadvantages
Advantages of Partnership
- Expertise and knowledge: A partnership business can give opportunity to utilize the expertise of different persons for different parts of the business. The partners together can bring more knowledge, experience or talents to help grow the business. The partners with complementary skill and acumen can contribute effectively to bridge any gaps and ensure successful business operations with tangible results.
- Cost Savings: In a partnership business, the owners can share the financial burden for capital and ongoing expenses required to run the business. This helps in generating more savings as compared to sole proprietorship business.
- Flexibility: A partnership business allows sharing of responsibilities and labor among partners. A partner can give other partners more ease and flexibility to look after other business opportunities by diverting his time and efforts. It also results in a positive impact on personal life by maintaining a work-life balance and avoiding extra work pressure.
- Moral Support: On a personal level, anyone needs moral support while handling setbacks or to cope with challenges and frustrations. Presence of a trusted and friendly partner can be a valued business companion who can provide support and motivation at the time of crisis.
- New Perspective: A partnership can bring in a set of different outlooks and new ideas that gives a broader perspective in business. It can help to plan and implement strategies more effectively towards successful results.
Disadvantages of Partnership
- Liabilities: A partnership business implies sharing any business losses as well as responsibility for any legal and financial obligations even if one is not directly responsible for this. In case of any financial burden or debt, the partners’ assets might be at risk. In other words, partners are liable for each other’s actions in conducting the business operations.
- Loss of Autonomy: In partnership business, it is not possible to enjoy total control of the business by any of the partners, but to share authority and decision making power with others. This may require a change in mindset and sometimes become stressful when one has to accept the decision of the majority without supporting it.
- Conflicting views: Sometimes conflicting views can surface that may make the working environment stressful. There can be differences of opinion between partners or the effort put into the business is not as per expectation. This may affect smooth functioning of business activities.
- Lack of structured approach: A partnership business with combined ownership sometimes lacks proper leadership who can provide a suitable direction in operations. Some partnership firms often operate without much of a structured approach and defined policies and fail to gain trust among the general public.
- Sudden dissolution: The operations of a partnership business may be affected severely if anyone or more partners decide to leave which requires evaluation of partnership assets and liabilities.
Comparison Table for Advantages and Disadvantages of Partnership
| Advantages | Disadvantages |
| A partnership business is easy to establish and the startup costs are also low. | The partners of a partnership business have to share the unlimited liability for the debts and losses generated through business. |
| A partnership business can have more capital and resource availability as different partners contribute to it. | In partnership business, each partner is liable to share responsibility for any legal and financial obligations arising from business even if he is not directly responsible for this. |
| Partnership business utilizes a combination of varied skills, knowledge, and expertise that is beneficial for successful business operations. | In partnership business, there is a risk of disagreements and difference of opinion among partners regarding operations of business. |
| Partnership gives opportunity for sharing responsibility and labor that reduces the extra burden of work on any one of the partners. | Each partner of the partnership business is liable for the actions by other partners in conducting the business operations. |
| In partnership business, partners can get support from each other morally and emotionally at the time of facing challenges and business crises. | In a partnership business, if any of the partners leave, the rest of the partners have to value all the partnership assets which can be a costly affair. |
| In partnership business there is less possibility of external intervention or regulations as the structure and policies are decided by owners. | In a partnership business, there is less possibility of taking greater control of the business and lack of autonomy as experienced by individual partners. |
FAQ’s on Partnership Advantages And Disadvantages
Question 1.
How does a partnership business benefit from the varied skills of partners?
Answer:
The combination of skills and knowledge of different partners helps to execute business operations successfully. One of them may have sound technical knowledge while the other has good marketing skills which can complement each other.
Question 2.
What are the main types of partnership business?
Answer:
The three main types of partnership business are, Limited partnership, General partnership and Limited liability partnership.
Question 3.
How do emotional issues arise in partnership operations?
Answer:
The partners involved in the business have different outlook and experiences and may try to establish their views and decisions that may create differences in opinion among partners thereby creating emotional pressure and stress on individual partners.