Q. Explain the advantages and disadvantages of partnership?

Advantages of Partnership Firm

1. Easy formation: A partnership firm can be formed without any compulsory legal formalities and operating expenses. It is not necessary to get the firm registered. 2. Larger Resources: Since two or more partners join hand to start partnership business, it may be possible to pool more resources a compared to sole proprietorship. The partners can contribute more capital, more effort and also more time for the business. 3. Flexibility in Operation: There is an elasticity of operation i partnership business. At any time, the partners can decide to change the size or nature of business or area of its operation. There is no need I follow any legal procedure. Only the consent of all the partners required. 4. Better Management: Partners pay more attention to the affairs business since there is a direct relationship between possession, control and profit. They regularly meet to discuss the affairs of business and cantake prompt decision 5. Sharing of Risk: In partnership, all the partners share the business risks. 6. Protection of Minority Interest: Every partner has an equivalent voice in decision making. A partner can prevent a decision being taken if it unfavorably affects his welfare and interests.

Disadvantages of Partnership Firm

1. Instability: The partnership firm has no legal entity separate from its partners. The casualty, insolvency or mental illness of any partner bringsthe firm to an end. 2. Unlimited Liability: Since the liability of partners is combined and to an unlimited extent, any one of the partners can be called upon to pay allthe amount overdue and debts even from his private properties. 3 Lack of Harmony: In view of the fact that every partner has equal right, there is greater potential of friction and quarrel among the partners. Differences of opinion may lead to distrust and dissonance which may finally result in disturbances and ultimately ends with closure of the firm. 4. Limited Capital: Since there is a limitation on the maximum number of partners (twenty), the resources and investment which can be raised islimited.