Advantages and disadvantages of Partnership in Business

 Advantages and disadvantages 

of Partnership in Business

Ratneya Consultancy Services (RCS) is a business consultancy firm by Ratenya Group founded by Mr. Deepak Doddamani. 

As a Proprietor and Principal Consultant of Ratneya Consultancy Services (RCS) Mr. Deepak Doddamani has guided many Enterpreneurs in early stages of their StartUps. In this blog he shares his learning from his experiences for the benefits of Entrepreneurs. 

Many Entrepreneurs don't feel comfortable in starting businesses alone. They need someone who can share the risk and also give them confidence to start a business. That's where Partnership firms and Limited Liability Partnerships comes in the play. Amateur who start businesses without doing proper paper-work end up in bitter experiences. Hence it is important to form a Partnership Deed before starting the Operations of the business. What are the advantages and disadvantges in forming a Partnership in business? 

Advantages of Partnership: 

There are many advantages of running businesses in partnership. Let's discuss important ones. 

1) Shared Risk: 

When you start a business in a partnership, you share the risk associated with the uncertainty of the business. In India, if you don't want to get into huge compliances and taxation etc. you choose to form a Partnership Firm. The safer option is ofcourse Limited Liability Partnership where your Startup/Company becomes a legal entity which reduces the risk on your personal Assets. 

2) Shared Responsibility: 

Business Partners share responsibilities related to Business. They divide different departments amongst themselves and play roles which are complimentary to each other. This is very important for the growth of the business as partners bring their own expertise, experience and perspective on table. Division of work among partners leads to efficient management. 

3) Easy to form and easy to dissolve: 

A partnership firm can be easily formed with minimum legal procedure. In case of death of partner or insolvency of business it can easily be dissolved too. No legal procedure is required. There is no legal interference in the business which makes it very flexible. 

4) Shared Resources:

Partners can bring their own resources as a Capital to start a business. Their individual credibility in the Market increases their combined borrowing capacity. 

5) Flexibility in the Structure:

A partnership firm can be changed into LLP or Pvt Ltd business when it becomes successful. You can make your best performing high calibre employee your partner whenever you decide to change the structure of your business. Sharing of income, liability etc are private affairs of partners. 

Disadvantages of Partnership in Business:

There are many disadvantages of running businesses in partnership. Let's discuss important ones. 

1) Unlimited Risk: 

In a partnership firm (which is not registered as LLP) debt liability of the business comes directly on the Partners. All the partners are liable for any loans or borrowed funds raised for the business. 

2) Slow decision making:

When more heads are involved in running the business, it becomes important to take consent of all the business partners in the decision-making. Some times it leads to delays in the decisions. 

3) Diagreements and Frictions:

In the partnership firms, disagreements and frictions amongst partners is very common. Brainstorming can convert into heated arguments which may lead to separation of business partners. It becomes very important that partners should have transparency and integrity of highest levels. 

4) Separation can become Costly affair:

As per my experience, business partners never quarrel with each other when they are starting together. Most of the disputes happen when their business becomes successful and one business partner starts getting more limelight than another. Whenever a partener decides to leave, the exit value of the exiting partner can reduce overall business assets of the firm. 

5) Dependence on partners:

Running a business in partnership; indirectly means depending on your partners on many aspects like funding, work, resources and decision making. Sometime's death or exit of partner can stop the business abruptly. Investors, Creditors and Customers have less trust on Partnership firms. Action of one partner becomes liability for other partners. 

These are many advantages and disadvantages of doing businesses in the partnership.