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Advantages and Disadvantages of Partnership Firm

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Advantages of Partnership Firms

  1. Prompt Decision:
    As the partners are directly involved in business activity, they are always available for decision making. Because of this, the partnership firm has higher chances of getting the prompt decision. This could be much more beneficial for the emergency situation.

  2. Facility of loan:
    As a partnership firm is established by two or more than two people i.e. the size of the partnership is comparatively large. The goodwill and reputation are also high, because of this, a partnership firm has a large source of the loan. It can generate sufficient money for expansion and growth.

  3. Easy to start
    A partnership firm can be started by making the agreement between partners and concerned department of Nepal Government. This business does not require complex legal procedures for an establishment.

  4. Sufficient Capital:
    In comparison to sole trading concern, the partnership can generate sufficient capital for business. Different partners have a different source of money. Because of this, the partnership can generate a large sum of money for its establishment, growth and its expansion.

  5. Incentives to work:
    In a partnership business, the partners are directly or indirectly involved in business activities. That partner who has directly or actively been involved in business will get salary as well as share in profit. Therefore, a hardworking partner will get the incentives in form of profit share.

  6. Effective Management:
    The works and responsibilities of partnership firms are divided among the partners. Different partners are allocated with different work responsibility. This helps to bring effectiveness in the management of the business of an organization.

  7. Flexibility:
    Partnership business is more flexible than sole trading concern because the business can be easily financed for growth and expansion. On the other hand, partners may go out or come into business but the partnership business is not affected.

  8. Secrecy:
    In the partnership, there is no legal obligation to partners to publish its financial information, if the partners intend to keep the information secret. It is possible to maintain the secrecy of the information.

  9. Equal rights of partners:
    The concept of minority and majority is not allowed in partnership. All the partners have an equal right to participate in decision-making and involve in business activity. The concept of share is applied only in profit distribution.

  10. Easy to dissolve:
    A partnership business can be dissolved after making the agreement between partners regarding the dissolution of a business. The dissolution of the partnership firm does not require any complex legal proceedings.

Disadvantages of Partnership

  1. Limited Capital:
    As the partnership business is established and managed by a few partners, it has less chance of accumulating a large amount of capital. In comparison to the joint stock company, the partnership has less capital.

  2. Unlimited liability:
    The liability of the partnership firm is not limited to the property of a business. It means the partners are required to sell their personal property in case of more debt over the property of a business.

  3. Difficult to transfer share:
    The share of the partnership firm is only transferable after the agreement of the partners. A partner wishing to sell the share of a partnership must get consensus before selling it. Therefore, it has difficulty in share.

  4. Uncertain existence:
    A partnership business may face dissolution in case of death, insolvency or mental or physical illness of active partners. The partnership of business could be shut down by the partner after making the agreement between them. Therefore, it has an uncertain existence.

  5. Lack of public faith:
    Since the partnership business has limited sizes, non-existence in the eye of the law, it has less public faith. The public doesn’t believe in partnership business as much as the joint stock company because it has difficulty in both expansion and growth.

  6. Problem of dispute:
    Even though the partnership business firm is formed by the agreement of partners, the partners may not agree all the time. The partners may disagree regarding the profit and use of authority. This dispute between partners may create a problem in the existence of a business.

  7. Lack of prompt decision:
    The partners are required to build consequences before making any decision in the partnership business. For this, all the partners must be together to discuss the matter of business. It takes a long time and brings delay in decision making.

  8. Risk of implied authority:
    In partnership business, active partners are authorized to make a decision on behalf of a business or other partners. There is no certainty that active partners will make a decision for the betterment of the business. There is a risk that active partners may take a decision on personal benefits. Therefore, a partnership has the risk of implied authority.








Khanal, Soma Raj, Surendra Thapa Aslami and Sitaram Dhakal. Business Studies. Kathmandu: Taleju Prakashan, 2067.

Pant, Prem R., et al. Business Studies. Kathmandu: Buddha Academic Publishers and Distributors Pvt. Ltd., 2010.



Advantage of Partnership Firms

  1. Easy to get loan
  2. Insufficient Capital
  3. Incentive to work
  4. Effective Management
  5. Facility of loan
  6. Flexibility
  7. Secrecy
  8. Prompt decision
  9. Equal right of partners
  10. Easy to dissolve

Disadvantages of Partnership

  1. Limited capital
  2. Unlimited liability
  3. Difficult to transfer share
  4. Uncertain existence
  5. Lack of public faith
  6. Problems of dispute
  7. Lack of prompt decision
  8. Disk of implied authority

Questions and Answers

Click on the questions below to reveal the answers

The advantages of partnership are:

  • Easy to get loan
  • Insufficient Capital
  • Incentive to work
  • Effective Management
  • Facility of loan
  • Flexibility
  • Secrecy
  • Prompt decision
  • Equal right of partners
  • Easy to dissolve

The disadvantages of partnership are:

  • Limited capital
  • Unlimited liability
  • Difficult to transfer share
  • Uncertain existence
  • Lack of public faith
  • Problems of dispute
  • Lack of prompt decision
  • Disk of implied authority

  • __________are the characteristics of partnership business.

    Unlimited liability
    Two or more persons
  • Which one is not a characteristics of partnership business?

    Two or more persons
    No profit sharing
    Unlimited liability
  • Which one is the characteristics of partnership business?

    Sharing of profit/loss
    Sole Management and Control
    Single Ownership
    No profit sharing
  • _______________are the merits of partnership firm.

    Adequacy of capital
    Easy to commence and dissolve
    Effective management
  • ___________are not the merits of partnership firm

    Single ownership
    Adequacy of capital
    Easy to commence and dissolve
    Effective management
  • ________is the disadvantage of partnership firm.

    Limited capital
    Uncertain life
    Limited liability
    Chances of misunderstanding
  • Who one is not a disadvantage of partnership firm?

    Chances of misunderstanding
    Delay in decision
    Unlimited liability
    Limited liability
  • _________are the disadvantage of partnership firm.

    Delay in decision
    Uncertain future
    Lack of public confidence
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