Pros and Cons of Partnership as a Form of Ownership

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Q.1 Identify the pros and cons of the partnership as a form of ownership?

A partnership is formed when two or more people engage in a business activity and share investment, profit and loss. Just like any other form of ownership, it has its advantages and disadvantages. Following we discuss some of the pros and cons of a partnership.

Pros of the Partnership

(1) Ease of Formation: Partnership is comparatively simple to form. All you need to form a partnership is an agreement. A verbal agreement is enough to start a partnership however it is much recommended that partnership be formed based on a written legal partnership agreement.

(2) Funding: Partnerships generally have a low startup cost. With two or more people investing capital in the company, the business will have a much stronger financial ground. Two or more people can also have better access to outside funds needed to run the business

(3) Divided Responsibility: In a partnership responsibilities of running a business are shared by the owners. Shared responsibilities ease the work load on individuals and can also increase productivity by splitting responsibilities in a way that individuals can use their special skills to maximize the output.

(4) Support: Owning and running a business can be very demanding, challenging and stressful. Having a business partner can give you a little peace of mind because a partner can provide moral support when needed.

(5) Taxation: The income profit/loss in a partnership flows through the business to individual partners for taxation. In other words the partners are taxed only on the basic of personal income i-e how much loss or profit a partner endured.

Cons of Partnership:

(1) Liability: In a partnership both partners have un-limited liability (not in LP and LLP). Both partners are responsible for not only their own actions but also the actions of their partners. So, if your partner fails to pay a debt, you personally are responsible for paying that debt and vice versa. If someone sues the partnership and the business doesn’t have enough money to cover the expenses than the partners personal assets will be at stake.

(2) Conflicts and Disagreements: Partnerships are for the long term and over the course of time conflicts arise and disagreement happens. Whether these are personal or management style conflicts. They can adversely affect the business. When general partners don’t agree it can delay the decision making time of the company and a bad conflict is enough to dissolve a partnership.

(3) Dependence on Partners: The success of any partnership depends heavily on contribution from all partners. If a partner withdraws the business will be crippled, if a partner dies the partnership can die with him. Moreover you can’t make any business decision on your own you’re dependent on your partner.

(4) Difficulty Withdrawing: It is not that easy to get out of a partnership. Whoever needs to withdraw will be personally liable for any monetary obligations due at the time of withdrawl.

Q.2 Discuss funding options for small business?

In order to run a business you need capital. Getting the money together to start a new business is the top priority of any entrepreneur. There are several ways to finance a small business. Following are some options for financing a small business.

(1) Personal Resources: Using your own assets is the most common form of small business financing. You can use money from your saving, ask family or friends for capital or use a credit card.

(2) Loans: In order to startup a new business, entrepreneur borrows money from the banks. The banks charge an interest rate on the money lent. The business owner must pay the original money borrowed plus the accumulated interest over the life of the loan. In today’s economy it is not easy to secure a commercial loan with the bank. A better and easier way for a new business to get a bank loan is with loan...
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