Unlimited Liability of at least one Partner
At least one member of every partnership must be a general partner. The general partner has unlimited personal liability, even though he/she is often the partner with the least resources.
Capital Accumulation
Although the partnership form of ownership is superior to the proprietorship in its ability to attract capital, it is generally not as effective as the corporate form of ownership, which can raise capital by selling shares of ownership to outside investors.
Difficulty in disposing of partnership interest without dissolving the partnership
Most partnership agreements restrict how a partner can dispose of his/her share of the business. Often a partner is required to sell his/her interest to the remaining partners. When the money is not available to purchase a partner’s interest the other partners may be forced to accept a new partner or to dissolve the partnership, distribute the remaining assets and begin again.
Lack of Continuity
If one partner dies, complications arise. Partnership interest is often nontransferable through inheritance because the remaining partners may not want to be in a partnership with the person who inherits the deceased partner’s interest. Partners can make provisions in the partnership agreement to avoid dissolution due to death if all parties agree to accept as partners those who inherit the deceased interest.
Potential for personality and authority conflicts
Making sure partner’s work habits, goals, ethics and general business philosophy are compatible is an important step in avoiding nasty business divorce. No matter how compatible partners are, frictions among them are inevitable. The key is having a mechanism such as a partnership agreement and open lines of communication for controlling it. The demise of many partnerships can often be procedure to resolve those conflicts.
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