Partnership firm is a type of business organization which is established and operated by two or more than two partners. There are several advantages or merits of partnership firm such as easy formulation, large capital resource, division of risk etc.
The main advantages of partnership firm are described below:
1. Easy formulation
Partnership firm is simple to establish, operate and dissolve. Legal requirements are few. The costs are low to start.
2. Large capital
Partnership firm has larger capital/ It pools the financial resources of all the partners. Large scale production and marketing is possible. Business expansion is possible and credit availability is high in partnership firms.
3. Better management
It is another big advantage of partnership firm. Combined skill and abilities of partners allow better management. Group decision making is possible. More heads make better decisions. There is division of work among partners. Business decisions are balanced.
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4. Divided risk
Partnership divides risk among all the partners. Losses are shared by all partners as per agreement. The risk of individual partner is low.
5. Higher motivation
Partners are motivated to work hard. Greater efforts bring higher profits for partners.
6. Flexibility
Flexibility is also a notable advantage of partnership firm. Changes can be easily made in capital, management and operations. Adaptation to changing environment is easy because of less legal requirements.
7. Secrecy
Partnership firm can keep secrecy about sales, profits and financial position of the firm. It is not required to publish audited accounts. Secrecy helps to face competitions. Business secrets remain with partners.
8. Tax advantage
Partners are taxed on the share of their profit as individual. They get all tax deductions available to individual. Their tax liability is low.
