What are the Advantages and Disadvantages of a Partnership Firm?

A partnership firm is one of the most famous types of legitimate organisations. In a Partnership firm, two or more individuals come together and start a business to gain profit. In this blog, we will discuss some of the advantages and disadvantages of a partnership firm.

Advantages

There are various advantages of establishing a partnership firm.  The points listed below are some of the advantages of a partnership firm:

1. Easy to establish: It is quite easy to start a partnership firm. All you need to establish a partnership is a partnership deed. It can be easily started on the same day. Whereas if we talk about establishing a Limited Liability Partnership (LLP), the registration alone takes about 5 to 10 working days. This happens because a lot of elements are required for its registration and are acquired from the Ministry of Corporate Affairs like DIN, Approval of Name, DIgital Signatures and Incorporation.
2. Swift decision making: The most important part of an organisation is its ability of decision making. The process of decision making is easier and faster for a partnership firm because there is no need to pass resolutions or ask for approvals. A wide variety of powers is enjoyed by the partners of a partnership firm. In most of the cases, the partners are capable enough to undertake the transactions in place of the partnership firm and they don't even need any sort of consent of the other partners.
3. Fund Raising: It is easy for partnership firms to raise funds as compared to proprietorship firms. Since there are a number of partners, an increased amount of reasonable contributions can be made among the partners. It has also been seen that banks prefer a partnership firm over a proprietorship firm and are more favourable towards partnership firms.

Disadvantages

The various disadvantages of a partnership firm are listed below:

1. Uncontrolled Liability: In a partnership firm, each and every partner is liable for the losses that are faced by the firm. Every partner is personally liable for the liabilities that are created by the partners of the partnership firm. In order to get rid of this concept of unlimited liability, the government introduced the Limited Liability Structure.
2. The maximum number of Members: In a partnership firm, the maximum number of members that can form the partnership firm can not be more than 20. However, when it comes to a limited liability partnership, the number of maximum members is unlimited.
3. No central Figure: The presence of a leader can either uplift an organisation or derail it. Since partnership firms are based on combined ownership, the possibility of a leader becomes zero. This absence of a leader leads to operations which are directionless. But, it is possible for some of the partners to be given more power and authority so that they can get a designation in a partnership firm.
4. Trust Issue with General Public: It is true that starting a partnership is easy and does not even need any sort of registration. Also, not many rules and regulations are required for the functioning of a partnership firm. Therefore, sometimes the public hesitates to trust partnership firms.
5. Sudden Dissolution: It is possible that a partnership firm gets dissolved suddenly. This could happen because of the death of the partner or insolvency of the partner.  This kind of sudden dissolution leads to the restriction of business. But, if we talk about a limited liability partnership, the entity will not dissolve automatically in case the partner dies. Therefore, a limited liability partnership ensures a continuous business.