Business

What are the Disadvantages of Partnership Business

Disadvantages of Partnership

Disadvantages of Partnership

Partnership form of organization suffers from certain disadvantages also. These in brief are as follows.

Unlimited Liability

One of the critical defects of partnership is that the partners are individually and mutually answerable for all the debts of the firm. In case, the business suffers losses and the business assets are not adequate to satisfy the claimants, the personal properly of one or more than one partners can be sold under the court order for the clearance of the debts of the business. The rich and wealthy persons, therefore, avoid enlisting in partnership.         

Limited life of Firm

The period of the partnership is always unsure. If any partner dies, wounded, withdraw, sells his interest, or a new partner admitted into the business, the old partnership may come to an end. There are every potential of the dissolution of the firm due to internal differences.

Frozen Investment

It is very easy for a partner to invest money but it is most difficult to withdraw the funds from the business. A person who desires to withdraw investment has to consult his partners, find a replacement with equal business capability. Unless the above condition  fulfilled, the funds remain difficult to transfer and as such remain a frozen investment which creates lack of interest.

Disputes among the Partners

The partners should be liked minded, have a common objective, be large hearted, have a cool character, should not unnecessarily cause friction and confusion among the partners. The choosing of partner is in fact like choosing a wife.  Marry in haste and repent in leisure. In case of dispute among the partners, quick action should be taken by all the partners for the remedial measures.

Lack of legal Rules

The partnership has not been able to take large scale enterprises due to ineffective legal rules and regulations.

Possibility of misuse of Resources

It is known to each and every partner that the resources of the firm owned jointly. There can and does arise the misuse of resources by a partner /partners.

Loss of Business Opportunities

A delay may take place in decision making due to the differences among the partners. So this can cause loss to the firm.

Divided Control

In partnership, the organization ‘works  divided among the partners according to their capacity, variety and taste. Divided control and responsibility sometimes creates misunderstanding and delay in decisions making. The lack of effectiveness on the part of one partner can upset the entire structure of the business and ultimately lead to dissolution of the business.

Lack of Permanence

The life of Partnership is least permanent. The death, dispute or withdrawal of partner makes its life uncertain.

Lack of Public Confidence

Partnership form of organization may not have public confidence due to lack of advertising and lack of regulation.

Risk and implied Authority

In partnership form of organization, each partner binds other partner by his act done on behalf of the firm. Thus the other partners may have to pay for the follies and dishonesty of a fellow partner.