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ABA Family Legal Guide
Forming and Operating a Small Business
Types of Business Organizations
Partnerships
What are the disadvantages of partnerships?
The major disadvantage is that in both limited and general partnerships, general partners have unlimited liability. This means that to protect their personal assets they have to take some additional (and maybe costly) steps. For example, a general partner doesn't have to be a person. Often, the general partner is a corporation or a limited liability company, and this form of business then provides liability protection for the owners. In this way, the threat to a general partner's assets often can be minimized or eliminated. Another important disadvantage is that a partnership is not as stable as a corporation. A general partnership and a limited partnership dissolve in many cases automatically when a general partner
The partnership will shut down unless either a remaining general partner continues the business or all the partners (or in some states, a majority) agree to continue it. However, a corporation, under most statutes, continues forever or until some specific action is taken to dissolve it.
It may be more difficult in a partnership than in a corporation to have a hierarchy of management and to raise capital from outside sources. But creative agreements can provide for specific management arrangements and variations in capital ownership in the partnership.
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