Merits and Limitations of Partnership

Merits of partnership:

• More capital and managerial skill — since two or more persons pool their resources, a partnership can usually raise more capital, and draw on more varied managerial ability and specialisation, than a sole proprietorship run by one person alone.
• Shared risk — business risk and losses are shared among all the partners rather than falling on one individual, which can encourage partners to take on ventures a sole proprietor might hesitate to attempt alone.
• Flexibility and ease of formation — a partnership is relatively simple and inexpensive to form (registration itself being optional), and, since decisions are not bound by rigid company-law procedure, the partners can adapt the business quickly to changing circumstances by mutual consent.
• Better credit standing — because every partner is personally and unlimitedly liable for the firm's debts, outsiders often extend more credit to a partnership than they would to a sole proprietorship of comparable size.

Limitations of partnership:

• Unlimited joint liability — every partner remains liable, without limit, for the debts of the firm, including debts arising from another partner's acts done in the ordinary course of business — a partner's personal assets can be used to pay off firm debts he had no direct role in creating.
• Possibility of disputes — since decisions generally require the partners' mutual agreement, disagreements between partners over policy, profit-sharing, or the conduct of the business can arise and, if serious enough, can disrupt or even dissolve the firm. …