QS Study

Disadvantages of Partnership Business

Partnership business is the combination of two or more persons. When two or more persons agreed to form a business and run by them with a view to earning a profit is called partnership business. It is formed on the basis of the deed and it is regulated by Partnership Act 1932. It is maintained and run by good faith and mutual agreement of members. In spite of the advantages of the partnership business, it has some disadvantages. The main disadvantages are given below:

Unlimited liability: The liability of a partnership business is not limited up to the investment of partners. Because the personal property of a partner is liable whenever the partnership business will be bankrupt. For this reason, the liability of a partnership business is unlimited.

Lack of Stability: This business is easy to form and easy to dissolute. This is true that the successful working of a partnership business depends on mutual trust and confidante. In case it doesn’t demonstrate these then the business will no longer have existed.

Different opinions:  A proverb is, “many men many minds.” Sometimes different opinion may create problems in a business.

Lack of public confidence: Public confidence is not confirmed towards the partnership business because that is no government or legal obligations without registration of partnership deed.

Restriction on transfer of share: Without the consent of all partners, the shares of partnership business are not transferred. As a result, many people have negative attitude inwards the partnership business.

Mismanagement: All partners have equal rights to lead the business. For this reason, the disorder and decline can easily be possible in terms of management.

Unable to hire expert employee: Sometimes with the complaint of other partners, a partnership business is unable to hire expert employee then it becomes quite difficult to run the business.

Inexpert management: Many partners lead the firm without maintaining rules and regulations or having proper managerial knowledge but try to do illogical interference, the complexity of handling and many other issues which stands as a bar to continuing the business.

Lack of separate entity: This business has no separate entity but the entity carries the identity of the business.

Limitation of expansion: Limited members, inadequate capital, inefficient management make restrict the expansion of partnership business properly.

Finally, it is concluded that the partnership business has huge benefits but some disadvantages create obstacles to continue the business successfully.