advantages and disadvantages of partnership business

ADVANTAGES OF PARTNERSHIP,

advantages here simply means the various benefits for going into partnership business

(1)        Sufficient capital: Partnership has more financial resources than a sole proprietorship because more people are involved, hence more capital can be raised through partner’s contributions.

(2)        Increase in production: There is increase in production as a result of increase in capital and management.

(3)        Joint decision making: Better results are derived when two or more partners put their heads together and take joint decisions for the enterprise.

(4)       There is privacy: In this kind of business unit, there is privacy because partners are not legally compelled to publish the annual accounts for public consumption.

(5)       Better management: By combining skills and abilities, partnership businesses are usually better managed than a one- man business.

(6)       Sharing of risks and liabilities: The partners can share risks and liabilities among themselves and this will reduce individual burden.

(7)       Better chance of continuity: There is better chance for continuity because the death or exit of a partner may not lead to the end of the business.

(8)       No legal formalities required: In forming a partnership, no major procedure of establishment is required, unlike a company.

(9)       Increased efficiency: The bringing together of special skills and talents help to increase efficiency in production.

(10)     Specialization in management: The principle of division of labour can be applied in the managerial and administrative hierarchy of the business. For example, in an accounting firm, some accountants may be management accountants while others may specialize in auditing or taxation.

  • Greater possibility of expansion: There is the possibility of expansion, by making use of additional capital derived from in-coming partners.
  • Loan facilities: A partnership can easily obtain loan from creditors since they are jointly liable. The loan can be used for the expansion of the business.

DISADVANTAGES OF PARTNERSHIP

  • Unlimited liability: The partners are liable for the debts of the partnership business up to the full extent of their estate.
  • Business is not a legal entity: Partnership business is not a separate and distinct personality. It cannot sue and be sued in its own name.
  • Limited growth: The growth of the partnership will be limited to the managerial ability of the partners.
  • Disagreement between partners can end the business: There is the possibility that a disagreement between the partners can put the business to an end.
  • Risk of dissolution: Death, insanity and bankruptcy of a partner will bring the business to an abrupt end.
  • Difficulty in management: Since every partner will want to contribute his own quota, decision-making may be slow and long.
  • False records: Some of the partners, especially the active partners, can use false records to gain advantage over others.
  • Inability to raise sufficient capital: Partners cannot invite the public to raise capital. Members of the public are always afraid to invest because of its unlimited liability.
  • Action of one partner is binding others: There is an inherent danger one partner, through his recklessness, put others into problem and this may destroy the business. All the partners will be held responsible for the action of one of the partners in the course of one the firm’s business.

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