Disadvantages of Partnership

Disadvantages of Partnership

The main disadvantages of Partnership are given below:

i. Lack of harmony

After a few years of working, friction and disharmony may creap in. Each partner vies with one another in dishonest dealings. This mutual conflict and lack of team spirit pave the way for the dissolution of the firm.

ii. Absence of Legal Status and Instability

The partnership firm has no separate legal existence. It is inseparable from the partners composing it. As a result it is terminable on the death or insolvency of a partner.

iii. Limited Resources

The maximum number of partners in a partnership firm is 10 in the case of banking business and 20 in other cases. In actual practice the number will be well below this maximum because of the need for ensuring harmonious working. In view of this, only limited resources are available. Modern large-scale enterprises which require huge capital outlay cannot be started.

iv. Limited Risk-taking

In view of the danger of unlimited liability, the partners tend to be overcautious. So, normally they do not want to assume risks starting new ventures.

v. Risk of implied authority

Every partner can bind the firm and his other partners by his acts. Therefore all other partners become liable to a greater extent because of the folly and fraud committed by a fellow partner.

vi. Lack of public confidence

As its accounts need not be audited and published, it lacks public confidence.