The partnership is combining two or more people in the same business for mutual interest. There are multiple Characterized reasons behind the popularity of partnership comparing to a sole proprietorship, joint stock companies and public limited companies. The other side of the coin is the Disadvantages.
Ease of Organization
Partnership can be organized without any legal formalities. There is no license fee, registration fee, registration fee for the formation of this type of organization. No formal documents are required to be submitted to the Registrar’s Office. Two or more persons may start this type of business at any time. But the formation of the Joint Stock Company is needed long complicated process.
In the sole proprietorship the capital remains limited but this problem does not arise in the partnership firm due to number of partners i.e. 20 in ordinary business and 10 banking business. As such partner contributes his share in the business so capital volume can be sufficiently increased for business activities.
The partnership firm is considered safe organization for providing credit facilities due to unlimited liability of partners. Thus sufficient funds in terms of credit can be: procured from financial institutions or other sources in time of need.
Simplicity in Dissolution
There are no complicated legal requirements for the dissolution of the partnership firm. Partners may dissolve their business very easily at any time. On the other side, Joint Stock Company cannot be dissolved without fulfillment of the long process of the company ordinance 1984.
A firm may enjoy the combined abilities of several heads. There may be different abilities & types of partners i.e. purchaser, administrator, accountant and Technician. So the firm is in a position to utilize their services for productive purposes.
As the firm enjoys larger financial sources therefore, it is possible for the organization to train & hire the services of qualified and competent persons for indefinite period of time. Thus capital and financial sources of firm may be utilized maximum in profitable sector.
Minority protection in a partnership cannot be neglected by law. All the policy matters are decided with the consent of each partner. If any matter is disposed of without the willingness of one partner, the dis-agreement partner may withdraw his share and may dissolve the firm. Thus there is no risk of any conspiracy against the minority partners on behalf of the majority partners.
The partnership firm is in a better position in respect of personal element as compared with Joint Stock Company. As number of members in ordinary business cannot exceed 20, so all the benefit is confined among these partners. This factor creates the effective motivation to efficiency, economy, production and strong financial position.
Minimum Legal Restrictions
This form of organization is fee from following restrictions:
- Declaration of Profit.
- Submission of the Report to the Registrar’s office.
- To audit the annual accounts.
- To call the meeting.
- To dispose of the Resolution
- To maintain the statutory books.
- To publish certain statements.
On the other hand, public company has to follow strictly the above mentioned restrictions by law. But partnership may operate freely without interference from any legal authority.
People show more confidence on partnership firm than sole trader ship. If firm is registered they think .these are working under the supervision of the government.
So, people feel no risk in creating relation with such business. Thus goodwill is established in the market which increases the income earning capacity of the firm.
Expansion of Business
There are more chances to expand the business volume due to the following factors:
number of partners. Large
- Combine judgment and abilities.
- Personal interest of each partner
- Fore-sight element due to unlimited liability.
- Administrative and technical abilities.
- Borrowing facilities.
But some important factor are not found in sole tradership. So its business cannot be expanded comparatively.
This organization is considered flexible as compared with Joint Stock Company. Partners can change their business policy with mutual consultation. They thus make immediate decision, since there is no necessity of disposing of resolution. The quickness of action is the most important element in the field of management as well as in marketing.
As there is no compulsion to publish its accounts for partnership firm so the business secrecy remains confined within the partners. This sector is important for effective business operations. But Public Company has to publish all types of accounts by law.
Partnership is the best organization for small investors and to show themselves the proprietors of the firm. This factor promotes the moral courage of partners.
Absence of Fraudulent
As every partner is allowed to participate in the affairs of the business, therefore each partner may look into the activities of firm. There is no risk of fraud or misrepresentation on behalf of the working partner.
According to the provision of the partnership, every partner may check the accounts. So, this provision minimizes the chances of manipulation in accounts.