{"id":4898,"date":"2016-04-04T10:47:49","date_gmt":"2016-04-04T15:47:49","guid":{"rendered":"https:\/\/content.findlaw-admin.com\/ability-law\/smallbusiness\/incorporation-and-legal-structures\/what-are-the-disadvantages-of-partnerships.html"},"modified":"2025-10-19T15:21:00","modified_gmt":"2025-10-19T20:21:00","slug":"what-are-the-disadvantages-of-partnerships","status":"publish","type":"page","link":"https:\/\/www.findlaw.com\/smallbusiness\/incorporation-and-legal-structures\/what-are-the-disadvantages-of-partnerships.html","title":{"rendered":"What Are the Disadvantages of Partnerships?"},"content":{"rendered":"\n
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What Are the Disadvantages of Partnerships?<\/h1>\n\n
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\n By Jade Yeban, Esq.<\/a> | Legally reviewed by Catherine Hodder, Esq.<\/a>\n | Last updated\n
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Editorial Note: We earn a commission from affiliate partner links on FindLaw. Commissions do not affect the editorial integrity of our legal content.<\/p>\n\n <\/div>\n \n

\n \n <\/i>\n Legally Reviewed\n <\/summary>\n\n
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This article has been written and reviewed for legal accuracy, clarity, and style by FindLaw\u2019s team of legal writers and attorneys<\/a> and in accordance with our editorial standards<\/a>.<\/em><\/p>\n\n <\/div>\n <\/details>\n\n

\n \n <\/i>\n Fact-Checked\n <\/summary>\n\n
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The last updated date refers to the last time this article was reviewed by FindLaw or one of our contributing authors<\/a>. We make every effort to keep our articles updated. For information regarding a specific legal issue affecting you, please contact an attorney in your area<\/a>.<\/em><\/p>\n\n <\/div>\n <\/details>\n<\/section>\n\n\n

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Key Takeaways<\/h2>\n

The main drawbacks of a partnership are unlimited personal liability<\/span>, potential for disagreements, and partners being bound by the actions of their partners.<\/p>\n\n <\/div>\n <\/div>\n<\/div>\n\n\n

When small <\/span>business<\/span> owners<\/span> team up to start a business, they might start a business partnership<\/span>. Besides sole proprietorships<\/span>, partnerships are the simplest type of <\/span>business<\/span> entity<\/span>. This business structure<\/span><\/a> means that two or more people own the business together.\u00a0 Each business partner<\/span> contributes different skill sets and work ethics<\/span>, which can create a successful partnership. But, partnerships also have disadvantages.<\/p>\n

While entrepreneurs might see the advantages of a partnership<\/span>, like sharing the startup<\/span> costs<\/a> and having someone to share decision-making<\/span> with, they should also consider the disadvantages of a <\/span>business partnership<\/span>. Creating a business plan<\/span><\/a> can help, but unexpected problems can arise.<\/p>\n

This article details some of the most notable disadvantages of partnership business structures<\/span>.<\/p>\n

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Liability in Partnerships<\/h2>\n

In a general partnership<\/span>, every business partner<\/span> is responsible for the business debts<\/span>. This means if the business doesn\u2019t have enough money to pay back what it owes, individual partners<\/span> are responsible for the debts of the partnership. This is called personal liability<\/span><\/a>.<\/p>\n

Even if one general partner<\/span> makes a mistake, all partners could be accountable. If someone sues the business<\/a>, partners\u2019 personal assets<\/span> like houses and savings could be at risk.\u00a0<\/p>\n

A general partnership<\/span> is one of the types of partnerships<\/span><\/a>. There are also limited partnerships (LPs)<\/a>, limited liability partnership<\/span><\/a>s<\/span> (LLPs<\/span>), or limited liability limited partnerships (LLLPs)<\/a>. Some of these offer liability protection. Small <\/span>business<\/span> owners<\/span> in a general partnership<\/span> are liable for debts of their business operations<\/span>.<\/p>\n

Transferability in Partnerships<\/h2>\n

If a business partner<\/span> wants to leave or sell their part of the business, it\u2019s not always easy. Unlike shares in a corporation that you can often sell to anyone, partner shares in a partnership structure<\/span> need the other partners\u2019 consent. Absent an\u00a0agreement to the contrary<\/a>, the default rule in partnerships is that one person\u2019s stake cannot be transferred to another without prior consent from all of the remaining partners<\/span>.\u00a0<\/p>\n

This inflexibility is especially undesirable when the parties have existing disagreements, making having an exit strategy<\/span> very difficult.\u00a0If a partner passes away or just wants out, the partnership might have to end if they didn\u2019t plan for what to do in their business plan<\/span>. That\u2019s why it\u2019s important to talk to a lawyer<\/a> and set these things up when the partnership starts. If not, finding a new partner<\/span> or transferring ownership can get complicated.<\/p>\n

Instability in Partnerships<\/h2>\n

Business partnerships<\/span> can sometimes be shaky. When partners don\u2019t agree on decision-making<\/span> or the management of the business, it can cause disagreements. If one person isn\u2019t pulling their weight or their work-life balance isn\u2019t right, it can affect the whole business.<\/p>\n

Plus, if a business partnership<\/span> doesn\u2019t have a clear process for handling issues when someone wants to leave or when bringing in a new partner<\/span><\/a>,\u00a0it\u00a0can create instability. In a small business<\/span>, stability is extremely important.<\/p>\n

Unclear Authority in Partnerships<\/h2>\n

Another drawback of informal partnerships is the potential vagueness of each person\u2019s responsibilities. This can apply to both those in the partnership and to those outside of the arrangement. A traditional partnership is an equal stake with equal authority distributed between the members. There is no hierarchy of authority.<\/p>\n

To third parties, this means that all partners act on behalf of the partnership. They can enter into contracts<\/a> and bind the partnership into unwanted agreements.<\/p>\n

Even with a partnership\u2019s limitations, this business structure<\/span> still might prove to be a superior option for many due to its flexibility and informality. Many of the limitations can be addressed with a\u00a0carefully drawn partnership agreement<\/span><\/a>. Many seeking a partnership structure<\/span> also consider a\u00a0limited liability company<\/span><\/a>, which has the characteristics of a partnership, but as its own legal entity<\/span>, offers liability protection to the member of the LLC.<\/p>\n

See FindLaw\u2019s\u00a0Partnerships<\/a>\u00a0and\u00a0Choosing a Legal Structure<\/a>\u00a0sections for more articles and useful resources.<\/p>\n

Get Legal Help With Your Partnership Questions<\/h2>\n

Whether you plan to form your company as a partnership, LLC<\/a>, incorporation, or different\u00a0type of legal structure, you should understand the advantages and disadvantages of each. The specific disadvantages of a partnership can also depend on the type of partnership<\/span> you form.<\/p>\n

If you\u2019re operating an existing company or launching a new business, you may want to consult a\u00a0business attorney<\/a> for legal advice<\/span>.\u00a0An experienced attorney can advise you on liability, tax returns<\/span>, partnership agreements<\/span>, and other complicated legal aspects of your business. Professional legal help can answer your immediate questions as well as help you avoid potential issues in the future.<\/p>\n\n\n

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