Partnership Business

A partnership business is a business operated by two or more individuals who invest capital together. In this business, the partners jointly plan how to run the business.

They make plans, make decisions, and control activities such as what to produce, how much capital to invest, how many workers to employ, and how much to set the workers' wages.

For example, Riya and Rohit have jointly opened a cow farm. To make the business successful, they share equal responsibility and jointly make decisions on every matter, such as planning, investing capital, and hiring workers. If the business is successful, all partners are entitled to the profits, and if the business fails or is damaged for other reasons, all partners are responsible. 

If a partnership business incurs losses and has to pay compensation, and the partners' capital is insufficient, they also have to pay from their personal assets. The profit earned from this partnership business is distributed among the partners based on their investment, and if there is a loss, the partners have to bear it themselves. 

If any partner cannot pay their share of the compensation, the other partners are obligated to pay their share. Therefore, the main characteristic of a partnership business is unlimited liability.

Major Types of Partner

In a partnership business, based on the role of the partners, partners can be divided into two categories: active partners and sleeping partners.

1. Active Partner: An active partner is a partner who is dedicated to the business operation and actively participates in it. Active partners are constantly striving to improve the quality of the organization's production and the advancement of the business. The role of active partners is crucial in the success or failure of the business. Thus, the success of the business depends on the diligence, hard work, effort, intelligence, and ideas of the active partners.
2. Sleeping Partner: Sleeping partners are partners who invest capital in the business but do not play any active role in the business operation. Such partners do not do any work such as giving suggestions or controlling the business operation. They also do not show any interest in the business's affairs. Therefore, they have no role in the success or failure of the business. Such partners are also known as dormant partners, silent partners, and hidden partners.

Advantages of Partnership Business: 

The advantages of partnership business are as follows:

1. Easy to establish: Establishing this type of business does not involve many legal complexities. Partners can easily establish this type of business by entering into an agreement. The difficulties involved in establishing a joint-stock company do not arise under this.
2. Sufficient capital: Since there are two or more partners, sufficient capital is collected. More capital is collected in this than in a sole proprietorship, so the business can be operated smoothly. Production on a large scale is possible due to higher capital investment.
3. Effective management: In a partnership business, various tasks and responsibilities are divided among all the partners. Since everyone works together in the operation and supervision of the business, the management is proper and effective.
4. Appropriate decisions: In a partnership business, any decision is made through extensive discussion and agreement among all partners. Decisions made based on the wisdom, judgment, and advice of many people are always appropriate and effective.
5. Loan facility: Banks or financial institutions are more willing to provide loan facilities to partnership businesses than to individual businesses because the risk of loan default is lower.
6. Distribution of losses: Even if the business incurs losses for any reason in a partnership business, the loss is not borne by one person alone. Since all partners share the losses, the burden of loss is reduced.
7. Higher profits: Since more capital is invested and the business is operated on a larger scale than in a sole proprietorship, the profit in a partnership business is also higher.
8. Personal contact: In a partnership business, each businessperson has continuous contact with other friends and customers. This helps in producing goods and services according to the interests and desires of the customers. Discussions and suggestions with other individuals help in the successful operation of the business.

Disadvantages of Partnership Business: 

The disadvantages of partnership business are as follows:

1. Delay in decision-making: Sometimes, quick decisions cannot be made when all partners do not agree on something. If decisions are delayed beyond the appropriate time, various difficulties can arise in the business operation. Differences of opinion can even lead to the closure of the business.
2. Unlimited liability: If a partnership business incurs losses for any reason, all partners have to pay the losses even by selling their homes, land, or personal property. If any partner cannot pay their share of the amount, the other partners have to pay their share as well. Therefore, the liability of partners in a partnership business is unlimited.
3. Difficult to transfer ownership: Transferring the ownership of shares of any member in a partnership business is extremely difficult. No partner can transfer the ownership of their shares without the consent of all partners. They cannot sell their shares to others and separate themselves from the business according to their wishes.
4. Uncertainty: The lifespan of a partnership business is uncertain. The business may be dissolved upon the death of any partner or if they leave the business. Similarly, if any partner becomes selfish, shirks responsibility, or there is mutual dispute among the partners, the business may not run smoothly and may have to be closed.
5. Lack of confidentiality: Since all partners are aware of the decisions related to the business operation, these decisions may not always remain confidential. If any partner breaches the confidentiality of decisions or other matters that need to be kept confidential for a certain period, the business may fail.
6. Lack of sufficient capital: Although more capital is collected in a partnership business than in a sole proprietorship, the capital collected is less compared to a joint-stock company. Therefore, there is a lack of capital for operating large-scale industries.