Advantages and Disadvantages of Partnership firm

In India, we have a definite law that covers all aspects and functioning of a partnership, The Indian Partnership Act 1932. The act also defines a partnership as “the relation between two or more persons who have agreed to share the profits from a business carried on by either all of them or any of them on behalf of/acting for all”

So in such a case two or more (maximum numbers will differ according to the business being carried) persons come together as a unit to achieve some common objective. And the profits earned in pursuit of this objective will be shared amongst themselves.

The entity is collectively called a “Partnership Firm” and all the individual members are the “Partners”. Let us understand what are the advantages and disadvantages of Partnership firm

Advantages and Disadvantages of Partnership firm

A partnership firm is a form of business in which a group of people, also known as partners, come together. They set up their firm and provide services and products through it. However, a partnership firm is not considered to be a separate legal entity. Partners share all the profits and losses amongst each other. There is an unlimited liability given to all the partners. Below mentioned are the advantages and disadvantages of opening a Partnership firm in India.

Advantages of a Partnership

  • Registration is not compulsory in the case of the Partnership firm. It can be formed without any legal formality and expenses. Thus they are simple and economical to form and operate.
  • Due to the more number of members, the partnership firm has larger resources for the business operations as compared to a sole proprietorship.
  • Due to the limited number of partners, there is flexibility in the operations of the business as the partners can amend any objectives or change any operations any time by mutual consent.
  • The business of a partnership firm is very well managed by all the partners as they take an interest in the daily affairs of business because of the ownership, profit, and control.
  • In partnership, every partner bears the risks individually as it is easier compared to a sole proprietorship.

Disadvantages of a partnership include that:

  • The liability of the partners for the debts of the business is unlimited
  • Each partner is ‘jointly and severally’ liable for the partnership’s debts; that is, each partner is liable for their share of the partnership debts as well as being liable for all the debts
  • There is a risk of disagreements and friction among partners and management
  • Each partner is an agent of the partnership and is liable for actions by other partners
  • If partners join or leave, you will probably have to value all the partnership assets and this can be costly.

Here in this article, we have understood the advantages and disadvantages of a Partnership firm, it will surely be useful for you to grow your business.

The next step once your business is registered is to open a current account online and here you are all set to successfully manage and grow your business


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