Pros and Cons of Partnership Agreements
Advantages
Easy to form
Set-up expenses are kept to a minimum, and the legal documentation required to form a partnership is more straightforward and less complicated than that needed for incorporation.
Direct rewards
Partners have more motivation, as they directly share in the profits.
Improved growth possibilities
It is generally easier to attract capital for financing a business operating under a partnership than it is for a sole proprietorship.
Flexibility
It is easier to execute decisions than it would be in a corporation, but it is more difficult than it would be in a sole proprietorship.
Freedom from bureaucracy
This arrangement will give you more freedom from federal regulations and taxation.
Disadvantages
Unlimited liability of at least one partner
One or more partners must assume the business risks and purchase considerable insurance to protect the business.
Instability
If any one partner decides to quit or passes on, the partnership is dissolved. The business can still operate based on the right of survivorship and the creation of a new partnership. Partnership insurance should be considered.
Difficulty in obtaining large sums of capital
Long-term capital may be difficult to find. Using partnership assets as collateral makes it somewhat easier than in the case of a sole proprietorship.
Firm is tied to the acts and judgement of one partner as agent
All partners can be held liable for partnership business activities and the commitments of any partner.
Severing partnership ties
Buying out a partner can be a difficult process, unless an agreement is reached at the beginning of the partnership.
* Source Streetwise Small Business Start-Up
