How unlimited liability is an advantage as well as disadvantage of a partnership firm?

Unlimited liability is an advantage as well as disadvantage of a partnership firm.

The word unlimited liability denotes no limitation to the liability. Unlimited liability is advantage to partnership firm because of the following reasons:

  • It enables to obtain additional fund because the financers are assured of refund of loan.
  • It acts as a cushion against reckless business activities because all partners are personally liable to the extent of private assets.
  • It provides a guard against inefficiency and carelessness of partners with regard to management.
  • It also increases credibility of the firm in the eye of public.

Unlimited liability is disadvantageous to partnership firm because of the following reasons:

  • As unlimited liability is joint and several, it discourages business initiative on part of partners.
  • it brings a great deal of loss for the off springs of the partners.