Partnership Definition Characteristics Advantages & Disadvantages

Sat, 11/14/2015 - 03:47 -- Umar Farooq

Expanding business activities gave rise to partnership as the sole proprietorship with its limitations could not rise according to the demand of time and requirements of expanding business activities. More capital, enhanced risk greater managerial talents and Abilities were being expected from the sole proprietorship which it was unable to meet. Hence the birth of partnership as another form of business organization.


A partnership business organization refers to plurality of persons wherein the persons establish a relationship by agreeing to carry on operations either all of them or any one of them acting for all and agreeing to share profits arising of the same


Number of Persons. There are at least two partners if the business is of ordinary nature than minimum partner are 2 and maximum is 20. While in case of banking organization minimum are 2 and maximum number of partners is 10.

Management and Control. In partnership business organization all the partners can take part in managing the business. However, they may elect any one of them as their representative in partnership agreement.

Unlimited Liability of Partners. Partners Liability is unlimited, if facing insolvency the assets are not sufficient to fulfill the liabilities then creditors have the right reserved to sue the partners. Liabilities if any, must be considered as the liabilities of the partners according to legal status of business. It means in case of insolvency of the business, their personal properties can be sold for the recovery of all its debts.

Taxation. It enjoys the tax advantages over other forms of business organizations. For the purpose of income tax owners and business are treated as same thing. Income from its operations is treated as the personal income of the partners. There all are personally liable to pay the tax to the government, if income becomes taxable.   

Flexibility. It is less flexible as compare to sole proprietorship due to more owners, more resources and difference of opinion among the partners.

Advantages and Disadvantages of Partnership Business


Easy Formation. It is very easy to establish, just like sole proprietorship no special legal formalities are required in order to establish a partnership business, even the registration of the firm is not compulsory. The partners' consent is sufficient to set up the business.

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