Suitability of Partnership Business: Partnership form of organization was developed because of certain limitations in sole-trade form of organization. The use of sophisticated machines have necessitated more investment and a need for expert managerial hands, Partnership form of organization is suitable under certain situations. It is more suitable under the following circumstances:
Suitability of Partnership Business
1. Managerial and Capital Requirement. After Industrial Revolution the scale of production increased. The increase in production was possible only through more investments. Business management also requires the services of qualified persons. A partnership concern can arrange more funds as compared a sol-trade business. The partners can also look after various functional departments.
Difference between Partnership and Sole-Trade Business
| Partnership | Sole-Trade | |
| 1. Membership | Partnership is owned by two or more persons known as partners. | Sole-trade business is owned and controlled by only one person. If a second person joins then it becomes a partnership. |
| 2. Agreement | To constitute partnership, an agreement is required in the form of a partnership deed. The agreement among partners may be express or implied. | A sole-trader does not require any formality to start the concern. There is no need of agreement in this business. |
| 3. Registration. | A partnership concern needs registration to get certain advantages of registration, Though registration is not compulsory but non-registration bars it from taking legal remedied. | No registration of a sole-trade business is required except under Shops and Establishment Act. |
| 4. Management | All partners have equal rights and all of them can participate in the management They can bind the business by their acts. | This business is controlled by one person only His order is a law and he is the final authority in the concern. |
| 5. Risk | The business risk shared by all the partners in proportion of their shares. | The whole risk is shared by the sole-trader. |
| 6. | All the partners contribute towards capital of the firm. The partners pool their resources to run the business efficiently. However, there is no bar on a person becoming a partner without bringing any capital. | Only the resources of one person are used in the business. He may suffer from shortage of capital because the resources of one person will generally be limited. |
| 7. Secrecy | The secrets of the business are in the knowledge of all the partners ; so there is a fear of leaking them out. | There is a complete secrecy in the business because the owner does not share the secrets with anybody else. |
| 8. Uncertainty | The life of a partnership is more certain than that sole- trade business. The change in partners does not necessarily close down the business. | This business is linked to the fate of the proprietor In case of death or with any other reason the business is bound to close down. So, the existence of this business is uncertain. |
3. Suitable for Small and Medium Scale Concerns. Partnership form of organization is left and medium wale business concerns. In such concerns the requirement of fenamoles moderate. The market for their products is limited. There is a direct relationship between the wo and the reward. Moreover, personal supervision is also un important factor in such concerns.
3. Direct Contact with the Consumers. Sometimes the nature of business is such that a direct contact with the comonomers is a necessity. Professional services like chartered accountants solicitors, doctors, etc. require direct contact with the clients. In wholesale and retail trade also a accessibility to consumers is required.
