Question

What characteristics make the partnership form of business organization so popular? What are some of the major advantages of the partnership business form? Why might the partners prefer this form of organization over a corporation? What kinds of businesses lend themselves to the partnership form of organization?

Answer 1

Characteristics of partnership firm:-

1) A partnership is an unincorporated association of two or more individuals to carry on a business for profit. Many small businesses, including retail, service, and professional practitioners, are organized as partnerships.

2) The life of a partnership may be established as a certain number of years by the agreement.

3) n a partnership, the partners are agents for the partnership. As such, one partner may legally bind the partnership to a contract or agreement that appears to be in line with the partnership's operations.

4) Partners may be called on to use their personal assets to satisfy partnership debts when the partnership cannot meet its obligations.

Major advantages of partnership firm:-

1) Partnership firms are one of the easiest to start. The only requirement for starting a partnership firm in most cases is a partnership deed. Hence, a partnership can be started on the same day.

2) Decision making is the crux of any organization. Decision making in a partnership firm could be faster as there is no concept of the passing of resolutions.

3) When compared to a proprietorship firm, a partnership firm can easily raise funds. Multiple partners make for more feasible contribution among the partners.

4) Every partner owns and manages the activities of their firm. Their tasks might be varied in nature but people in a partnership firm are united for a common cause.

Reasons for prefering organizations over a corporation:-

1) If a business is a sole proprietorship (one owner) or a partnership (more than one owner) and it fails financially then the owners can be liable for the debts of the business.

2) If the business is incorporated (Inc.) then if it fails only the assets held by the corporation itself can be attached.

3) By incorporating the owner is protecting his personal assets as separate from the business.