PARTNERSHIP, ITS MERITS AND DEMERITS

A partnership is a formal arrangement by two or more parties to manage and operate a business and share its profits.

MERITS:

  • Easy to set up.
  • Owner has complete control – not answerable to anybody else.
  • No legal formalities.
  • Owner keeps all profits.
  • Able to choose times and patterns of working.
  • Able to establish close personal relationships with staff ( if any are employed ) and customers.
  • The business can be based on the interests or skills of the owner rather than working as an employee for a larger firm.
  • Partners may specialise in different areas of business management.
  • Shared decision making.
  • Additional capital injected by each partner.
  • Business losses shared between the partners.
  • Greater privacy and fewer legal formalities than corporate organisations (companies)

DE MERITS:

  • Unlimited liability – all of owner’s assets are potentially at risk.
  • Often faces intense competition from bigger firms, for example food retailing .
  • Owner is unable to specialise in areas of the business that are most interesting – is responsible for all aspects of management.
  • Difficult to raise additional capital.
  • Long hours often necessary to make business pay.
  • Lack of continuity – as the business does not have separate legal status, when the owner dies the business ends too.
  • Unlimited liability for all partners ( with some exceptions ) .
  • Profits are shared .
  • There is, as with sole traders , no continuity and the partnership will have to be reformed in the event of the death of one of the partners.
  • All partners are bound by the decisions of any one of them.
  • Not possible to raise capital from selling shares.
  • A sole trader, taking on partners, will lose independence of decision making.
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