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.
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- 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.