Dis-Advantage of Partnership

Limited Capital

As the number of partners is limited in this form of organization so the capital remains limited. When the capital cannot exceed to a particular limit, large size business may not be started.


Unlimited Liability

This is a great drawback of the partnership that private property of each partner is also liable to pay business debts. This factor prevents the rich man to invest large capital in such risky business.


Lack of Prompt Decision

The number of partners creates the problem to reach certain decision. So the difference of opinion is the great hindrance in promptness of decision. This delay brings many problems in marketing, Production and management.


Lack of Supervision

There are no effective rules and regulations to control the activities of partnership in our country. Audit and publication of accounts is not compulsory by law for partnership firm. So the lack of supervision has increased the chances of manipulation and fraud in accounts.


Absence of Perpetuity

Partnership has not the capacity of continued existence. The life of the partners is connected with the running life of the partnership business. The partnership may come to an end by the death, retirement, insolvency or disagreement of any partner.

Expansion Problems

The business of the partnership may not be expanded due to the following factors:
(a)        Limited number of partners.
(b)        Limited capital and financial sources.
(c)        Unlimited liability.
(d)       Lack of managerial and technical abilities.
But the business of the joint Stock company may easily be increased due to the absence of the above mentioned factors.

Reading: Benefits of Partnerships


Lack of Interest

Partners do not take keen interest in the business activities of the firm due to the following reasons:-
(a)        Limited share of Profit or loss of each partner.
(b)        Limited chances of growth of business.
(c)        Restriction in the transferring of shares.
(d)       Frozen investment.
(e)        Limited life of the business.
Thus the result in the absence of personal interest is the success or failure of the business.


Chances of Disclosure

Each partner is allowed to participate in the management of business by law. So all partners know the internal affairs of the business. In case of withdrawal, dis-agreement or retirement of partners, there will be a great risk of leakage of the secrecy.


Limited Abilities

As the financial resources of partnership are limited as compared with joint Stock company so it is not possible to engage the higher technical and administrator persons. Thus the result is the failure of business sooner or later.


Reading: Characteristics of Partnership


Chances of Friction

There should be mutual co-operation and trust among the partners and these factors are necessary' for successful achievement of the business. But generally there is mis-understanding, friction and dispute among the partners which hamper the progress of the firm.


Lack of Confidence

As there is no compulsion by law for the publication of accounts in partnership so true picture cannot come to the notice of the public. Due to this situation people do not trust partnership firm and avoid to deal with and enter into contract.


Transfer-ability of shares

There is restriction to transfer the share without the consent of existing partners. If a partners transfers his share without obtaining consent, firm may be dissolved. Thus investment remains concentrated into few hands.

Reading: Distinction between Partnership & Co-Ownership


Risk of Loss

As the management of the partnership generally conducted by unskilled and inefficient persons, there are great risks of losses. In case of heavy losses the business may come to an end. But in the joint stock company the amount of losses is sustained by number of shareholders and so business is not affected by such situation.


Unfit for Large Scale Enterprise

This form of organization is quite un-suitable for large and heavy business due the following reasons:
(a)        Limited number of partners.
(b)        Limited capital.
(c)        Lack of technical and administrative abilities.
(d)       Limited life.
(e)        Unlimited liability.
(f)        In-sufficient rules and regulation.
But foregoing factors are not found in Joint Stock Company so this form is suited for large scale business.

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