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Disadvantages of Partnership

(i)    Limited Resources. A partnership firm has a limited number of partners because of which it may not be able to raise as much capital as a company can. Thus, it may not be able to expand its operations beyond a certain limit.

(ii)    Mutual Conflicts. All the partners can participate in the management of the business. But difference in their skills, capacity and foresightedness may make a ‘mess’ of the business of the firm.

(iii)    Unlimited Liability. Unlimited liability of the partners, jointly and severally, discourages formation of partnership because creditors can make any or all the partners liable and recover their dues even from the private property of the partners.

(iv)    Delay in Decision Making. The consent of all the partners is required in order to take all policy decisions. It may lead to delay in taking decision.

(v)    Risk of Implied Agency. Due to agency relationship between the partners, the acts of a partner are binding on the firm as well as the other partners. A dishonest or incompetent partner may bring disaster for the other partners.

(vi)    Non-transferability of Interest. A partner cannot transfer his interest in the firm to outsiders without the unanimous consent of all other partners. This discourages the people form investing in partnership firms.

(vii)    Low Public Confidence. Partnership firms enjoy less public confidence because of lack of legal restrictions over their formation and dissolution and because of non-publicity of their accounts.

(viii)    Disruption in Continuity. The continuity in partnership is uncertain. Its business may come to an end on the death, bankruptcy or lunacy of any one of the partners.

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