A partnership, to be brief, is nothing more than a mutual agreement between two or more individuals to undertake an enterprise. In business such an agreement is usually confined to production. Compared with the single enterpriser the partnership is at a disadvantage in the matter of business policy and authority. Unlike a single enterpriser, the member of a partnership must share more or less authority with others. Consequently, as often happens, the partners work at cross purposes, one advocating one business policy, a second advocating a different policy, while a third partner may disagree with both policies. Oftentimes, under such circumstances, it is found desirable to dissolve the partnership, it being necessary for the parties to agree mutually on some plan of dissolution. Profits, which the single enterpriser enjoys alone, must be divided among the partners. This division is made on the basis set forth in the agreements which partners usually make when the partnership is formed.

The mere fact that authority and profits must be divided among partners is not in any way indicative that partnerships are not necessary and profitable. We can easily imagine a situation where men desire to share authority with others, and where the profits going to each partner exceed what any one of them could possibly make in the same business. The Old adage that "two heads are better than one " applies very well to the typical partnership. In the retail business, for example, one partner may possess special skill as a buyer of goods, another may be an exceptionally good organizer of hired help, while a third may have marked ability in handling the finances of the business. Sometimes one partner merely furnishes the capital, taking no active part in the direction of affairs. Such a one is usually called a "silent partner."We may conclude, then, that a partnership offers advantages in at least two ways. First, it permits men possessing different kinds of abilities to unite, thereby increasing efficiency. Second, it makes possible the employment of larger capital, which, as we shall see later, contributes to increased production.