Partnership Firm: Drawback and Benefit
The partnership is basically the relation between persons who have agreed to share the profits of the business carried on by all or any of them acting for all. The owner of this firm are individually called partners, and collectively they are called as firm.
There are both pros and cons in starting a partnership firm. Here is the list to evaluate whether it is beneficial or full of losses:
Unlike One Person Company, partnership firms are formed with more than one person that brings more capital for investment. It also boosts the borrowing capacity of a firm. Furthermore, the lending institutions also perceive less risk in granting credit to a partnership than to a proprietorship because the risk of loss is spread over a number of partners rather than only one.
Easy to Form
The major advantage of a Partnership Firm is that it is very easy to form. It does not need different legal formalities for the incorporation of a partnership firm. There is a rule to get the firm registered. Here, to initiate a partnership firm, one needs to do a deed, which can be oral or written.
Starting and running a company is not a piece of cake. It includes multifarious responsibilities and hurdles. But starting a partnership firm incorporation with two or more individuals, who support each other with all the business tasks bring additional helping hands. Work is done faster, and the partners might be able to tackle more than if they worked alone.
Partnerships form an atmosphere for teamwork as all parties involved have a vested interest in the success of the business. It boosts developing excellent strategies and ideas to grow and operate the business. Partnerships allow for multiple concepts while making decisions, and this is a definite benefit over one person doing it on their own. There is also the added benefit of increased capital investment from each partner, which can aid in the crucial period when establishing the venture.
Drawback of Partnership Firm
Apart from all the positive and negative point, the most important factor is that people do not trust a partnership firm easily. Reason being, the partnership firm does not require any sort of registration or the structure of this firm. It makes the firm difficult to gain the trust of anyone.
No Limit on Liability
In a partnership firm, the liability of the partner is not limited, and any of the partners may be called upon to pay all the debts even from its personal properties. When a partner takes even a single step that is wrong, it leads other partners in huge losses and liabilities.
It is a fact that in partnership firm when people work together, there’s potential for conflict. Here, an individual does not have total control over the business. Decisions are shared, and differences of opinion can lead to disagreements. Sometimes, one partner disagrees with other’s decisions. And, they even get sick of working with each other. If this happens, one can’t easily dissolve the partnership.
The partnership can bring a sudden and unexpected end to a well-growing company. A partnership is dissolved as soon as one of the partners dies, retires, resigns, files for bankruptcy, or otherwise quits.
Like different types of business organization, the partnership is also a mixture of positive and negative points. One side, a partnership might not be ideal for everyone but, it has some unique advantages that other business structures do not have.