When two or more persons come together to fulfil a similar aim, it is called partnership. In other words, two or more than two persons mutually agree to invest their capital, skill and labour in some lawful business with an objective to share the profits therefrom, according to business agreement of partnership.

Advantages of Partnership: 

1. Ease in Formation and Closure – 

It is very easy and simple partnership to form due to a virtue of an agreement. The registration of such a firm is also not compulsory. 

2. Balanced Decision Making – 

The businessmen do business in their field of expertise. That helps in balancing their decisions and earn profits in return. 

3. Sharing of Risks – 

The risks are shared equally among all the partners. In this way, no single partner has to bear all the risk. 

4. Secrecy – 

A partnership firm does not need to publish the details of their business. Therefore, information is kept confidential in a partnership firm. 

5. Individual Supervision – 

In partnership, the task of management is performed by partners only and therefore every employee receives individual supervision. 

6. Flexible Nature – 

Partnership is a flexible organisation as its formation is based on agreement, and if needed, partners can jointly come together and invest in the business. Also, the business can be contracted or expanded according to the wish of the partners. 

7. Merits of Specialisation – 

One individual cannot be an expert in everything. Different partners can perform different functions according to their area of specialisation and ability 

8. Increase in working efficiency – 

Every partner works with full efficiency and thinks of every work as his/her own. The workers can also remain relaxed because of this, hence they do their work effectively. 

9. Ease in operation – 

There are better efficiency and continuity in partnership than sole trading. Even if one partner gets sick and is not able to perform regular activities, then other partners can take care of the situation and hence it does not affect the continuity of the business. 

Limitations of Partnership: 

1. Unlimited Liability – 

The partners in this business are liable to repay the debts even from their personal resources in case the business is not efficient enough to meet its debts, which creates a risk to their personal property. 

2. Limited Resources – 

The number of partners is less in partnership. Therefore, their contribution in terms of capital investment is also less. All of this may result in the limitation of business opportunities. 

3. Possibility of conflicts – 

Partnership means a group of people involved in a business who take decisions in their own fields. This might result in personal conflict. 

4. Lack of continuity – 

In case of either death of a partner, or he/she becoming insolvent, becoming lunatic can result in dissolving of the partnership firm. This results in its discontinuation. 

5. Lack of Public confidence – 

A partnership is not legally required to publish its financial reports or make other related information public. So here, the partnership business lacks public faith. 

6. Ban of transfer of shares – 

No partner can transfer his share to a third party without the consent of other partners. Therefore, the partner feels restricted. 

7. Uncertain Existence – 

The existence of a partnership is uncertain; because in case if a partner dies, becomes lunatic or willingly separates himself from the firm, then automatically, the partnership discontinues. 

8. Lack of cooperation – 

Partners start seeing their own interest in a partnership firm. This results at the beginning of the conflict between them. 

9. Loss due to the carelessness of partners – 

It one member shows negligence in his work, it affects every other member including those who do their work effectively. 

10. Lack of Quick Decision – 

All important decisions are taken by consent of partners, so decision – making process becomes time-consuming.