A partnership firm is not a discrete lawful entity separate from its members. It is merely a collective name given to the folks composing it. Thus, unlike a company which has a separate legal entity distinct from its members, a firm can not possess property or employ servants, and neither can it be a debtor or a creditor. It cannot sue or be sued by others.
It is only for the sake of expediency that in commercial usage terms like "firm's property”, “employee of the firm”, “suit adjacent to the firm" and others are used, however in the eyes of the law that simply means "property of the partners”, “employees of the partners" and "an outfit against the partners of that firm”. It is relevant to state that for the justification of levy of taxes, a partnership firm is an entity quite distinct from the partners composing it and is calculable separately. But for all other laws, they are treated as the same because a partnership firm does not have a separate legal entity of its own.
As mentioned earlier, partners are jointly and severally responsible for the actions of the other partners. Hence, one partner will place other partners at risk devoid of their awareness or consent.
Disadvantages consist of the following:
- Profits ought to be shared amongst the partners.
- With two or more partners being aware of decisions, management may be slower and more complicated than in a sole proprietorship. Disputes can secure the partnership in knots.
- As with a sole proprietorship, the value of some employee reimbursement might not be deductible from income taxation. Dependent on the partnership agreement, the partnership could have a restricted life. Unless otherwise precise, it’ll end upon the withdrawal or death of any partner.