Disadvantages of partnership
1. Unlimited liability:
Each partner is severally and jointly liable for all the debts of the firm. The greatest disadvantage is the unlimited liability of each partner. The unlimited liability of partners tends to restrict enterprise, especially when it involves creation of large liabilities.
2. Lack of continuity:
The partnership gets dissolved whenever there is a change in the constitution of the firm. In partnership, if a partner dies, retires, adjudicated insolvent, becomes of unsound mind or due to any reasons the business cannot be legally carried on, the partnership has to be dissolved.
3. Management difficulties:
In partnership management difficulties may due to non-contact with dormant partners or disagreement of even one partner. All policy matters are to be decided by the consent of all partners, a difficulty may arise in making contact with sleeping partners, A partner may not agree and the matter will be dropped although it was beneficial to the combined interest of the partners.
4. Frozen investment:
Partnership suffers from lack of public confidence as it is has no legal existence apart from its partners. The partnership, form is a poor choice from the View point of liquidity and transferability. it is easy to invest in partnership but difficult to withdraw the same. So the investment in partnership form of business is a frozen investment. If a partner dies or retires, the firm in the absence to an agreement to the contrary, is dissolved when full investment may not be realized. Even if the remaining partners or outsiders are willing to purchase the vacated interest, it is often extremely difficult to arrive at a fair price.
5. Limitation of size:
Although the financial resources of partnership are adequate and can be increased reasonably whenever need arises, but still they are restricted and limited to the extent of financial resources and credit standing of the partners. Due to this drawback partnership form of business cannot undertake large project like steel mills, heavy industry.
6. Lack of public confidence:
The partnership has no independent existence apart from the persons who compose it. Public confidence is reduced owing to the absence of legal formalities and want of publicity as to partnership affairs. Partnership accounts are not published nor filed with any public authority nor compulsorily required to be audited, hence the public remaining ignorant about its financial standing and place no confidence.