What are Some of the Advantages and Disadvantages of a Partnership?
- A partnership is relatively easy to establish, but potential partners must spend time establishing the ground rules of the partnership.
- Partnership profits flow directly to each partner's personal income tax return. The government does not tax the partnership as a separate entity.
- With more than one owner, the partnership may have an increased ability to raise funds.
- Potential employees may be attracted to the business if they are given an opportunity to become a partner.
- Each partner is jointly and individually liable for the actions of the other partners.
- A partner must share the profits with the other partners.
- As the number of partners increase, their potential for disagreements may rise since partnership decisions are made by more than one party.
- Partners may not be able to deduct some employee benefit expenses from their business income on their personal income tax returns.
- Sometimes the partnership may have a limited life; e.g., partners may withdraw from a partnership or a partnership might dissolve upon the death of a partner.