Question

State the merits of a partnership firm.

Discuss the merits of partnership.

Answer 1

The following are the merits of a partnership firm:

1. Secrecy of information: A partnership firm doesn’t need to publish its annual accounts. A partnership firm can thus maintain complete confidentiality of its information.
2. Ease of formation: A partnership requires an agreement (oral or written) between two or more partners. This eases its formation.
3. Risk sharing: The risks in a partnership firm are shared jointly by all partners. This reduces the burden on each partner.
4. Balanced decision-making: Decision-making is balanced, as all partners make all decisions collectively.
5. Simple dissolution: The partnerships are easy to dissolve as the dissolution requires either a 14-day notice by any of the partners or the completion of the specified time period for which the partnership was formed.
6. Greater flexibility: A partnership firm enjoys greater flexibility because not many restrictions are laid under the Partnership Act.
7. Limited Liability: Limited partners’ liability is limited to their contribution, protecting personal assets.
8. Stability: Unlike general partnerships, limited partnerships may have more stability due to the limited liability of some partners.

Answer 2

1. Ease of Formation: A partnership is easy and inexpensive to form. No legal formalities or documents are necessarily required. Only an agreement between partners is needed, and registration is not compulsory. It can also be dissolved easily at any time.
2. Larger Financial Resources: Multiple partners can pool a larger amount of capital compared to a sole proprietor. New partners may be admitted to raise further capital, which increases creditworthiness.
3. Combined Abilities and Judgement: Each partner brings different skills and experience. Combined knowledge leads to better decisions and specialization by assigning duties accordingly.
4. Direct Motivation: As partners are owners and managers, they directly benefit from their efforts, motivating them to work hard for the firm’s success.
5. Close Supervision: Partners personally supervise the business, ensuring close control of operations. Unlimited liability makes partners cautious.
6. Flexibility of Operations: There are fewer legal restrictions. Partners can modify business size, capital, or management without government approval.
7. Secrecy: Unlike companies, partnership firms are not required to publish accounts, keeping business affairs confidential.
8. Protection of Minority Interest: The firm is managed democratically. Each partner has the right to be consulted and express opinions. Dissatisfied partners may retire or ask for dissolution.
9. Cooperation: Partnership fosters mutual trust and collaboration between partners working for the common benefit.
10. Scope for Expansion: More partners can be admitted to provide financial and managerial support for business growth.