Meaning of Partnership – Advantages and Disadvantages

Meaning of Partnership – Advantages and Disadvantages and other important issues concerning business partnership are discussed herein. Partnership…

Meaning of Partnership – Advantages and Disadvantages and other important issues concerning business partnership are discussed herein.

Partnership business examples

Partnership in Business
Partnership in Business – Photo Source:

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Partnership means any business that has more than one owner or proprietor but is not incorporated as a company.

It happens when two or more people get involved in a business venture with the aim of making and sharing the profits derived from the business.

Partnership is just like a sole proprietorship only that there is more than one person involved with the running and overall management of the company’s affairs.

Before a partnership is initiated and activated, it is best to put the terms and conditions that will guide that particular partnership into writing because times and people change and as the business grows, one partner may want to outsmart the other.

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Types of Partnership

There are two types of partnership which are:

  • General Partnership and,
  • Limited partnership

General partnership

In the case of a general partnership, the two or more persons involved in the business put their money, resources, and time into the business, and they become actively involved in the day-to-day operation of the business.

The business is their primary concern, they sometimes do not have any other thing to do. Every decision taken in the business, they are all aware of it, they partake in the success and failures of the business.

A general partnership is the most common type of partnership amongst small business owners and this is because some persons still have trust issues even when terms and conditions have been put into writing or generally. After all, they want to carefully and closely monitor the growth of the business without being told.

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Limited Partnership

This is a situation whereby a business idea is shared with another person but the person who is grossly engaged probably engaged with another business idea or venture picks interest in the idea but lacks time to fully engage in the operation of the business, So he decides to invest his or her money in the idea.

In that case, the person does not actively participate in the business, his money does. He is not bothered with the day-to-day operation of the business, all that concerns him is that when the month or business year ends, he gets a whopping amount out of the company’s profit.

A lot of successful businessmen are either into this kind of partnership or have benefitted one way or the other from it.

Advantages of Partnership

1. Ease of formation

It is very easy to form a Partnership. Little or no expertise is required when forming it. All that is required is just the business idea and the terms and conditions properly put into writing.

2. Fewer regulations 

Just like the sole proprietorship, when your partner is in a business, you are faced with little or no government regulations.

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3. Greater expertise

‘Two heads are better than one when your business partner, you open the business’ opportunity to greater expertise.

What a person will see in the business may not be what another will see. While taking a decision, thinking as a team will help minimize mistakes.

4. Additional support

Businesses sometimes face great obstacles and when this happens, a sole proprietor may have limited support.

For instance, if you have just been supplied with some raw materials and you need to carry them to your business place with the help of a family or friend, your own family, and friends may not be within reach but that of your partner will be within reach.

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5. More profit

When two persons come together to put in their money for business purposes, the money becomes twice as much more than the sole proprietor and you will realize or come to terms that every business when invested duly into will yield more profit than the one that receives less investment.

Partnership is not taxed

In some regions, a business that is operated as a partnership is usually not taxed.

Disadvantages of Partnership

1. Unlimited liabilities

When one is engaged in a general partnership, the extent to which or her loss is usually not limited. Should the business close down, the person shares all the losses accrued by the business.

2. Lack of Control

Despite the terms and conditions, since there are two or more bosses, one may simply decide to become over-demanding and uncontrollable and this is not healthy for the growth of the business.

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3. Transferring ownership is impossible

In cases where there is a death of one of the partners, except otherwise stated in the terms of the agreement, the transfer of partnership rights is not readily possible as the living partner may decide to keep to himself all of the business’ assets and liabilities.

The death of a partner terminates the partnership!

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