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Define partnership.discuss its merits and de merits

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Partnership :-

A partnership is a formal arrangement by two or more parties to manage and operate a business and share its profits. ... In particular, in a partnership business, all partners share liabilities and profits equally, while in others, partners have limited liability.

Advantages of a partnership include that:

  • two heads (or more) are better than one
  • your business is easy to establish and start-up costs are low
  • more capital is available for the business
  • you’ll have greater borrowing capacity
  • high-calibre employees can be made partners
  • there is opportunity for income splitting, an advantage of particular importance due to resultant tax savings
  • partners’ business affairs are private
  • there is limited external regulation
  • it’s easy to change your legal structure later if circumstances change.

Disadvantages of a partnership include that:

  • the liability of the partners for the debts of the business is unlimited
  • each partner is ‘jointly and severally’ liable for the partnership’s debts; that is, each partner is liable for their share of the partnership debts as well as being liable for all the debts
  • there is a risk of disagreements and friction among partners and management
  • each partner is an agent of the partnership and is liable for actions by other partners
  • if partners join or leave, you will probably have to value all the partnership assets and this can be costly.

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