Business Formation

What are Some of the Advantages and Disadvantages of a Partnership?

Advantages

  • 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.

Disadvantages

  • 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.