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Advantages and Disadvantages of Partnership

Veethi Telang
Combination of talents, sharing of profits and losses, lawful business, mutual debts, calling for utmost faith ... there are numerous advantages as well as disadvantages of partnerships. Let us have a look at what they are.
A friendship founded on business is a good deal better than a business founded on friendship. - John D. Rockefeller
The other day, I was approached by a friend who wanted to start a new business, and offered me to be a potential partner. Even though it charged me up to the core, it made me anxious when I envisioned the forthcoming challenges in our transition from friends to business partners, and establishment of a business relationship with him.
A partnership is successful when you're in good terms with the person you're going to work with, but it may not always be true. After all, just like any other venture, there can be many advantages and disadvantages of partnerships.
In simple terms, a business partnership accounts for a relationship that exists between two or more individuals who undertake and carry on a business. Partners contribute funds, property, skills, and labor, and are expected to have an equal share in both the profits and losses made by the business.
While partnerships are easy to establish, there are also many positive and negative aspects they involve later on. It is always recommended you learn the various pros and cons that the business of partnership entails. Hence, following are the essential points which talk about the pros and cons of partnerships. Check them out:

Advantages of Partnership

  • Simply put, more than one owner of a business introduces more money to help starting a business.
  • There is a combination of talents, skills, and experience with the involvement of new partners, which may help in increasing the profits and cost-effectiveness of the business.
  • A partnership brings about better administration and financial planning which is otherwise difficult in case of a single owner of the business.
  • It is easy to expand the business with new partners being involved, since there is no hassle of managing the entire business on one's own.
  • All partners have an equal say in the matters of financial management, which fosters them to work whole-heartedly for the betterment of their company.
  • Post the payment of super tax to the government, the profits made by the company are equally divided among the partners. It is then that they can pay tax to the government on the shares of profit.
  • In case of a loss, partnership renders moral support, thus, enabling for an even more insightful point of view.
  • There is lesser room for rash decisions as the decision-making process is the field of performance for all partners.

Disadvantages of Partnership

  • Surprisingly, a partnership is not necessarily a legal entity, and is identified only for the purpose of tax law.
  • The existence of a partnership comes to an end with demise, incapacity, lack of funds, or even retirement of a partner. Moreover, dissolving a partnership is likely for partners in case of discontent.
  • There are many instances when one partner is over-ruled by another as every partner has an equal say in important decisions.
  • Even the simplest of arguments can, sometimes, turn into major disagreements between partners. As a result, all partners are bound by allegiance made by one, even if its disagreeable by all.
  • Even if one of the partners is responsible for loss, all the partners are collectively liable for the aftermaths of the company. Many a time, partners are asked to clear the debts from their personal assets in accordance with the decision made by all.
  • It is forbidden for a partner to transfer a share or segment of the company to outlanders without the approval of other partners, which may become inconvenient for that partner to resign from the company.
  • In case of unlimited liability partnership, partners could lose all of their personal assets in case of bankruptcy.
A partnership calls for endless compromises, and the attribute of shared control and regulation, which is accompanied while running a company, makes partnership all the more challenging to keep up with. Thus, when forming a partnership, the most significant decision for any owner is the choice of partner.
If you really need the person's skills and money for the welfare of your company, it is essential to take into account the above-mentioned pluses and minuses of partnerships before you offer them to be a partner in your business.