Disadvantages of Partnerships
Conflicts and DisagreementsHaving more than one person in the decision-making process leads to conflicts and disagreements. However, teams’ disputes and disagreements are healthy as the ideas are held by rationale and logic. The debates resolve when one party convinces the other and a decision is reached. In partnerships, disagreements can lead to tension and chaos because the power of decision equally lies between the partners. It is different from team discussions because the teams present their ideas and a supreme authority verdict. In partnership, there may be multiple leading authorities who may not always agree. Also, the conflicts may get worse, leading to the abortion of the partnership.
Dependent Legal StatusA partnership does not enjoy an independent legal status distinct from the partners. The association highly depends on each of the partners. Law says a partnership dissolves when one partner resigns from the collaboration or dies unless an alternative provision is in place at the time of the partnership. Some may threaten other partners with resignation. Alliances can be unstable and insecure of the partnership and keep the partner from developing the business. Partners are reluctant to expand the company because of the shared legal status.
Shared LiabilityA partnership means that the partners share all profits and losses. The others will share a loss incurred due to one of the partners, even though they were not responsible for the unfortunate situation. The losses can be a considerable burden on the personal assets and finances of the partners but cannot run away from it. Similarly, there is pressure to generate profits and avoid losses so the other partners may not suffer for another’s shortcomings. For example, if one partner makes a mistake that leads to a significant loss while the other partners are competent in performing their tasks, they must share the loss.
Lack of AutonomyUnlike a sole proprietorship, the partners enjoy limited autonomy in a partnership which entrepreneurs often dislike. One cannot wake up in the morning and do whatever he likes with the business. All the partners must agree to any change or decision to be implemented. Irrespective of how great the strategy is, it cannot be completed if the partners do not approve it. Entrepreneurs look at it as an obstacle that keeps them from practicing their vision and goals in the business. The constraints may appear like that of working in a company owned by someone else.
Liquidity ConstraintsOne of the partners may want to sell his shares or resign from the business if he needs to liquidity his assets for some other interest. However, they cannot sell the company unless all the partners agree to it. When attempting to exit a partnership, it can be difficult because of one’s investments and profits.
Partnerships have various benefits, such as sharing the costs and knowledge, but it also has several drawbacks such as conflicts and disagreements, shared liability, lack of autonomy, and others. Entrepreneurs must carefully analyze the advantages and disadvantages and decide accordingly. About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual bookkeeping, providing service to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud platform where their QuickBooks™️ file, critical financial documents, and back-office tools are hosted in an efficient SSO environment. Complete Controller’s team of certified US-based accounting professionals provide bookkeeping, record storage, performance reporting, and controller services including training, cash-flow management, budgeting and forecasting, process and controls advisement, and bill-pay. With flat-rate service plans, Complete Controller is the most cost-effective expert accounting solution for business, family-office, trusts, and households of any size or complexity.