Advantages and Disadvantages of Partnerships - Assignment Example

Partnerships can generally be divided into general partnerships and limited partnerships. In general partnerships, liability for business debt and obligations are shared among all the partners as they participate in the management of the partnership.

Therefore, every partner is jointly and separately responsible for the consequence of decisions made in the course of running the business by other partners. This is one of the key disadvantages of partnerships over other types of business organizations. However, an investor has the option of using a limited partnership as his investment vehicle. A limited partnership only holds the partners charged with managing the firm liable for the obligations and debts of the partnership. This type of partnership protects from debt and other liabilities for partners who are not actively involved in the running of the business.

Partners with protection from liability are referred to as limited partners. Other than the unlimited liability disadvantage, the partnership also has several drawbacks as a choice business structure. The unlimited liability disadvantage means that partnerships cannot engage in large-scale commercial ventures as partners fear their personal property may be attached in the event of their failure. Partnerships are characterized by a lack of continuity in case a member leaves the partnership or dies.

A partnership is an unstable form of business that may come to an end at any time. A partnership is at risk of dissolution if a partner dies, becomes insane, or is bankrupt. A partnership also lacks public confidence as it is an opaque business entity. There are no business registration requirements for partnerships and neither are the partners required to publish their accounts. This means that partnerships do not command much confidence in the eye of the public. The absence of a central authority is also a major disadvantage of the partnership form of business organization.

Since partners have equal authority in decision-making and management of the organization confusion arises when they guide the business in different directions. The impasse in decision-making means that the process of decision-making takes longer in partnerships than in other forms of business organizations. Conflicts and disputes among the partners impact greatly on the success of the business. It is difficult for partners to unite for the sake of the firm’s success. Adding partners means that opinions, viewpoints, and disputes arise affecting the operations of the partnership.

Another drawback of partnerships is that it is extremely hard to find suitable partners. A partnership involves putting invested capital in the hands of a partner. Therefore, a suitable partner is trustworthy and runs the business prudently to avoid endangering the business. Partners must also be ready to abandon self-interest and work for the benefit of the partnership. Unfortunately, partners have to share the losses they incur in their business. If a partnership makes a loss it is the responsibility of all partners in the business to shoulder the loss, regardless of their role in incurring the loss.