- Because the partnership business is jointly run, it is necessary that all the partners agree with things that are being done. This means that in some circumstances there are fewer freedoms with regards to the management of the business. Especially compared to sole traders. However, there is still more flexibility than with limited liability partnership where the directors must bow to the will of the members (shareholders).
- Ordinary Partnerships are subject to unlimited liability, which means that each of the partners shares the liability and financial risks of the business. Which can be off-putting to some people. This can be countered by the formation of a limited liability partnership firm, which benefits from the advantages of limited liability granted to limited companies, while still taking advantage of the flexibility of the partnership model.
- Partners share the profits equally. This can lead to inconsistency where one or more partners aren’t putting a fair share of effort into the running or management of the business, but still reaping the rewards.
- One of the major disadvantages of partnership firm registration, taxation laws mean that partners must pay tax in the same way as sole traders, each submitting a Self-Assessment tax return each year.The current laws mean that if the partnership (and the partners) bring in more than a certain level, then they are subject to greater levels of personal taxation than they would be in a limited company. This means that in most cases setting up a limited company would be more beneficial as the taxation laws are more favorable.
- One of the most obvious disadvantages of a partnership registration is the danger of disagreements between the partners. Obviously, people are likely to have different ideas on how the business should be run, who should be doing what and what the best interests of the business are. This can lead to disagreements and disputes which might not only harm the business, but also the relationship of those involved. This is why it is always advisable to draft a deed of the partnership during the formation period to ensure that everyone is aware of what procedures will be in place in case of disagreement and what will happen if the partnership is dissolved.