Benefits & drawbacks of a Partnership firm that you should know

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Choosing the correct structure of your Business is equally important as setting up the Business itself. Any wrong decision can cost your Business dearly. The Partnership is one of the most prevalent structures in India. Numerous Businesses adopt this Business structure for its various benefits.  

But the ultimate decision depends on your Business structure & whether this registration will be helpful or not. So it’s better to know its benefits & drawbacks beforehand.

In this blog, I will explain all the primary benefits & drawbacks of registering a Business as a Partnership firm.

Let’s get started with the Benefits first.

Benefits of Partnership registration in India

  • Easy to setup

Partnership firms need no specific registration or legal formalities, so it is effortless to start. The minimal capital requirement is also less, making the setup process quick & easy. All you need is a good idea, some partners & you can launch a Partnership firm in a day.

The whole Partnership firm is governed by a single document known as “Partnership Deed”. So if you are looking for a Business structure that is easy to set up, a Partnership firm is the answer.

Although no specific Business registration is required, we recommend getting your Partnership firm registered with the Government. This registration can prove helpful in availing various Government benefits.

  • Rapid decision making

Decision making is a critical factor that drives the business growth of any Business. This process is relatively slow in Business structures like a Private Limited Company. Partnership firms have an edge here.

As there are significantly fewer formalities for coming to any conclusion or making any decision, the decision-making process is quick. So if you are in a Business that needs quick decision-making, a Partnership firm can be a good option for you.

  • Accountability

When you start a Partnership firm with your partner/s, all of you agree on the same business idea. This results in partners understanding the importance of dedication towards the Business.

As all Partners have some stake in the Business, they collectively work towards taking the Business to new heights.

This results in the core team that is more accountable towards the Business and can prove to be a great asset. So if you believe that you have found the right Partners, a Partnership firm can surely do wonders in taking your Business Growth through the Roof.

  • Easy Funding

Funding is a crucial part of any Business. No Business can survive long without continuous funding and cashflow. Sole Proprietor firms often face the issue of funding. As they don’t have much credibility in the market, financial institutes usually avoid funding them.

But this is not the case with a Partnership firm. Financial institutes consider them more stable, and hence availing funding for Partnership firm is comparatively easy.

Moreover, as there are more than one partners, they too can contribute significantly towards the Business, easing the funding woos.

  • Easy to wrap-up

When you start a business, it is critical to consider the options of wrapping-up the Business. Registered Companies have a complex & lengthy dissolution procedure. This puts a lot of strain on the already defunct company and its members.

Fortunately, this is not the case with a Partnership firm. It can be dissolved very quickly, without any complex legal procedures. This is also a primary reason why Businesses choose a Partnership firm over Private Limited or LLP registration.

Drawbacks of a Partnership firm in India

  • Unlimited Liability of the Partners

Unlike an LLP or a Private Limited Company, a partnership firm is not a separate legal entity. So the Partners have unlimited liability towards the partnership firm. In case of any misdeed of even a single Partner, the whole Partnership firm will have to incur the losses.

Moreover, the personal assets of the Partners are not immune. Any outstanding liability of the firm can be settled by selling the Personal assets of the Partners.

  • No perpetual Existence

Partnership Deed between the Partners is the only documents that drive the Partnership. This is an agreement between the Partners, based on the mutual consensus. So if a partner leaves the firm or becomes unable to discharge his/her duties, the Partnership Deed stands void.

In such a case, the Partnership firm cannot carry forward its Business operations and has to be dissolved. So if you are looking for a Business that can have perpetual existence, a Partnership firm is not the right choice.

  • Less Credibility

Partnership firms are not mandated to publish their books and financial details. Although this might seem an advantage, it makes people sceptical about the firm. People don’t trust Partnership firms as much they trust a Private Limited Company. So if you are looking for a Business registration that people can trust, go for a Private Limited Registration.

  • No Central Leadership

In a Partnership firm, all members are treated equally. So there is no central leadership. This might impact the decision-making process of Business at a crucial time. Such issues can give rise to the clash of opinions among the Partners.

Conclusive thoughts

There is Good or Bad business registration. Just like every Business structure, Partnership firms have their Benefits & Drawbacks. Whether to choose it over other structures solely depend on your Business goals and your business’s nature.

Before you decide about choosing the Business structure for your firm, always consult an expert. An expert like Probal Consulting Group can give you better advice on the matter.

So if you need any assistance on such matters, please reach our experts; we will be happy to assist.

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