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Partnership: Features, Advantages & Disadvantages


The aim of starting any business activity is to make profits. Businesses can be started by an individual or a group of individuals either in the private sector or the public sector. The different forms of ownership make reference to aspects such as risk responsibility, ownership, management and the control of the business. Some of the available forms of business ownership include sole proprietorship, partnership, joint stock companies and cooperative societies. The above types of business forms can be adopted in establishing a business but the choice depends on several factors. Factors such as the objective of starting the business, its nature and the legal requirements involved are considered. This essay will discuss partnership form of business organization.

Features of Partnership

A partnership is formed by a minimum of two people who have agreed to conduct business. The members should not be more than ten for banking services and twenty for other services. Profits in a partnership are shared equally among all partners. The financing of a partnership is the obligation of the members who agree on how to make the contributions. Its management is in the hands of all the partners. Partners are not allowed to transfer their shares freely unless all other members have agreed. A partnership has unlimited liability which means that in case the business incurs losses, all the partners have a responsibility of repaying meeting the losses. Partnership is a temporary form of business organization which exists as long as its partners want it to exist.

Advantages of Partnership

A partnership form of business organization has got a number of advantages. The first advantage is that it is flexible in the formation process. This implies that there are no strict laws governing its formation. The second advantage is that the partners are able to share the responsibility of running the business hence good chances of success. The third advantage of a partnership is the decision making process is easy since members are able to share views and help each other out in case of difficulties (Bevans 85)

Disadvantages of Partnership

The first disadvantage of partnership is that there is always a danger of disagreements arising in the business. This is due to the fact that the partners are likely to have differing views. The fact that partners must agree in all matters reduces their freedom with regard to management of the business. The third disadvantage is that partners have unlimited liability which means that their personal property can be interfered with in case the partnership runs short of money. The fourth disadvantage of a partnership is that profits are shared and this may cause inconsistencies where some partners are not working as hard as others.

Types of Partnerships

There are three common types of partnerships. The first type of a partnership is general partnership where the members are general partners. In this type of partnership all partners take responsibility in running the partnership and bearing liabilities. The second type of partnership is limited partnership which comprises of both general and limited partners. Limited partners are not involved in the daily running of the business and their liability is limited. The third type of partnership is limited liability partnership. In this partnership, all partners have limited liability which means that their personal property cannot be interfered with when the business makes losses.

Partnership Contract

A partnership contract is a written document which specifies the relationship existing between the business partners and the running of the business. It contains the names and addresses of the partners, duration of the partnership, purpose of the business, information on bank accounts, admission of new partners and ways of resolving disputes among other things. A partnership contract is signed before a lawyer as evidence that the partners have agreed to form a business under the conditions specified in the contract (Bevans 85)

After the partnership has been formed, accounts are opened for the new partnership business. These accounts indicate the contributions made by each partner and the transactions. When one partner invests additional investment in the partnership, it is recorded in the account of the partner as shown below.

Debit Credit
Cash 30000
partner A capital 30000

The accounts for each partner are maintained after every single transaction. At the end of the year, the net income is divided among all the partners. The net income is arrived at when the profits exceed the revenues. A new partner who wants to join the partnership can be allowed to do so after all the partners have agreed the new member can join them. A partner who wishes to withdraw from the partnership is given a percentage which is equal or less to his total contributions. The death of a partner does not affect the running of a partnership. When a partnership undergoes liquidation, the assets are sold, liabilities paid and the remaining profits shared among the partners.


Partnership form of business is one of the different types of business organizations that are formed. This type of business is easy to form since it does not require many legal requirements for its formation. It is also easy to run and manage. However, it is disadvantageous in that the decision making process may be difficult because all the partners must agree. It also presents a difficulty in sharing profits since some partners may not be working as hard as the rest in the business.

Works Cited

Bevans, Neal. Business Organizations and Corporate Law. New York: Cengage Learning, 2006. Print.

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StudyKraken. "Partnership: Features, Advantages & Disadvantages." August 25, 2022.


StudyKraken. 2022. "Partnership: Features, Advantages & Disadvantages." August 25, 2022.


StudyKraken. (2022) 'Partnership: Features, Advantages & Disadvantages'. 25 August.

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