Partnerships are formed in order to overcome some of the drawbacks of a sole trader. They are
agreements between two or more people to carry on a business together with a view of making
profit. The agreement to work together does not create a separate legal unit; a partnership is just
a grouping of individuals.
It is usual, although not a legal requirement, to draw up a formal Deed of Partnership between all
partners. This would provide agreement on issues such as voting rights, the distribution of
profits, the management role of each partner and who has authority to sigh contracts.
Partnerships are the most common form of business organization in some professions, such as
law and accountancy.
Advantages of Partnership
As there are many people in a partnership with different skills and techniques it can help the
business in many ways.
There is shared decision making
All the partners will take part in the decision making process and they can evaluate and come up
with innovative and good decisions. No partner is neglected or ignored in the decision making
process.
Additional share capital
As there are more than two people in a partnership, the flow of capital will be there by everyone
or as described or declared under the agreement.
Share of losses and profits
Every partner will share the profit and the loss in the business. In case of sharing of losses this
will reduce the burden on each partner.
Easy to set up
As compare to company partnership is easy to setup in terms of less legal formal requirement
when forming a partnership and greater privacy.
Disadvantages of Partnership
Unlimited liability for all partners (with some exception)
Profits are shared
No continuity
If any partner is dead or has become insane or insolvent the partnership cannot continue its
operations until new partnership agreement is made.
Conflict
Disagreement between the partners can also arise if any partner is not comfortable with the
decision of other partners.
Difficult to raise finance
