What is the Advantage and Disadvantage of Partnership Firm? – Explained!

In case of partnership firms, like in sole proprietorship, partners provide capital and share the responsibility for running the firm on agreed basis. In partnership agreement, it may be such that some may invest in terms of monetary resources, while some other may take the responsibility of running the business.

Such terms and conditions are spelt out in the partnership deed. Hence, characteristically in partnership firm, we find involvement of two or more persons, contractual relations between the persons, lawful business, sharing of profit, agency relationship, unlimited liability and non-transferability of interest.

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Advantages of a Partnership Organization:

1. It is an easy and inexpensive form of business organization and is also easy to operate and administer

2. It enjoys the potential of large managerial control

3. Its income is taxed as the ordinary personal income of the partners

4. It relatively enjoys the potential of raising adequate capital to finance the business

Disadvantages of a Partnership Organization:

1. Relative difficulty in raising capital like a joint stock company

2. Problem of unlimited liability

3. Difficulty to transfer ownership

4. Limited life

It is, therefore, apparent that advantages and disadvantages of partnership forms of business organization are more or less similar to that of sole proprietorship.

In partnership forms of business, managerial control rests on the partners. Responsibility of managerial control on partners become more significant, when the size of the firm is relatively small. However, with the increase in number of partners, such responsibility gets reduced. Characteristically, we often find conflicts among partners in partnership forms of business.

When such conflicts increase to an unmanageable limit, the partnership firms get dissolved. This is because, resignation of one partner, dissolves the partnership agreement. Due to this reason, often we find the lifespan of a partnership organization becomes less than the lifespan of a sole proprietorship organization.

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