Disadvantages of Partnership PDF

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Disadvantages of Partnership

The following are the disadvantages of a partnership firm: 1. Division of responsibility: In a partnership the management is divided. As such responsibilities are also divided. Every partner might try to shift the burden on to the shoulders of others; finally none takes the responsibility properly. 2. Delay in decisions: Sometimes the partners may not agree with one another in taking decisions. As a result partners will not be in a position to take quick decisions. 3. Lack of continuity: A partnership gets dissolved on the death, insolvency, insanity or retirement of any partner. So, there is no guarantee for the continuity of the firm. 4. No transferability of share: In a firm the partner cannot transfer his share of interest to others without the consent of the other partners. 5. Lack of secrecy: It may not be possible to maintain secrecy in partnership because of the number of partners. 6. Unlimited liability: The creditors of a firm can recover their loan amounts from the personal properties of the partners when the firm’s sources are not enough. Therefore the personal properties of the partners are not safe.. 7. Joint and several liability: Every partner is jointly and separately liable for the firm’s debts. In case of insolvency of partners, the solvent partners have to pay the debts of the insolvent partners also. 8. Internal conflicts: Differences and disputes among the partners are very common. These conflicts harm the firm as a whole. 9. Misuse of assets: The partners may use the assets of the firm for their personal purposes. Misuse of assets is harmful to business interests. 10. Lack of public confidence: A partnership firm is purely a private organization. It is not controlled or regulated by the Government. As such public may not have confidence in the firm.

Characteristics of Partnership:

1. Membership: At least two persons are required to begin a partnership while the maximum number of members is limited to 100. Further, all the individuals entering partnership must be legally competent to do so, as they have to enter into a contract to become partners. Thus, minors, insolvent and lunatic persons cannot become members, but a minor can be admitted to partnership, to share profits. 2. Unlimited liability: The members of a partnership have unlimited liability, i.e. they are collectively and individually liable for the firm’s debts and obligations. So, if in case business assets are not adequate to repay liabilities, personal assets of all or any partner can be claimed by the creditors to realise the outstanding amount. 3. Sharing of profit and loss: The main purpose of the partnership is to share profit in the agreed ratio. However, in the absence of any agreement between partners, the business profits or losses are divided equally among all the partners. 4. Mutual Agency: The partnership business is undertaken by all the partners or any of the partner, who acts on behalf of all the partners. So, every partner is a principal as well as an agent. Further, the acts of partners bind each other as well as the firm. 5. Voluntary Registration: The registration of partnership is not mandatory, but it is recommended, as it offers certain benefits, e.g. in case of any conflict among partners, any partner can file suit against other partner or if there is any dispute between firm and outside party, then also the firm can file a case against that party.

6. Continuity: There is a lack of continuity in partnership, like death, bankruptcy, retirement, or insanity of any partner can lead the partnership to end. Although, if the remaining partners want to continue operations, they can do so by a fresh agreement. 7. Contractual Relationship: The relation subsisting between partners is due to the contract, which may be oral, written, or implied. 8. Transfer of interest: Mutual consent of all the partners is a must for transferring the interest in the firm to any external party. In a partnership, the decision making is done with the mutual consent of all the partners. They share among themselves the decision making and control of the regular business operation....