The Disadvantages of Partnership.
The following are the disadvantages of Partnership:
Unlimited Liability: The liability of partners is unlimited.They are not only liable for their business investments but their private properties can also be taken for business liabilities. Partners try to avoid risks and it restricts the expansion and growth of the business.
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Limited Resources: There is a limitation in raising additional resources for expansion purposes. The business resources are limited to the personal funds of the partners. Borrowing capacity of the partners is also limited. The number of partners to be added to a business is also limited. A banking company cannot have more than ten partners and in other businesses the number of partners cannot exceed twenty. So there is a limit beyond which partners cannot be added.
Instability: The partnership concern suffers from the uncertainty of duration because it can be dissolved at the time of death, lunacy or insolvency of a partner. The lack of trust among partners can also lead to dissolution. The discontinuity of the business is a social loss and it causes inconvenience to the consumers and workers.
Mutual Distrust: The mutual distrust among partners is the main cause for the dissolution of partnership concerns. It is difficult to maintain harmony among partners because they may have different opinions and may not agree on certain matters. Lack of confidence in each other can be a cause for quarrels and it may lead to the dissolution of the firm.
Limitation on Transfer of Share: No partner can transfer his share to a third party without the consent of the other partners. If a partner wants his share back it will not be possible without the approval of other partners or without dissolution of the firm. In case of a company, any shareholder can transfer his shares without affecting the working of the business. In partnership, a partner is permanently wedded to it.
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Lack of Public Faith: The accounts of partnership concerns are not published. so public is unaware of the exact position of the business. There is a suspicion in public mind that these concerns earn huge profits at the cost of consumers. There is no legal binding for the publication of accounts. So partnership concerns lack public confidence.
Lack of Prompt Decision: All important decisions are taken by the consent of partners so decision-making process becomes time consuming. There may be a possibility of losing business opportunities because of slow decision-making. The decisions are generally taken by consensus, it may be difficult to convince all partners for agreeing to a particular decision.