In the previous article we have told you about the partnership firm But In This Article, We will discuss The disadvantages or shortcomings of partnership firm that you might face while running a partnership firm.
The Major Disadvantages OF The Partnership Firm Are As Follows :
(1) Limited Capital : In the partnership firm, there is a restriction on the members of the partnership, therefore, the total amount of capital which can be invested in case of the partnership is limited to the sum total of the individual amount invested by each partner. It is not attainable for the Partnership firm to collect huge capital.
(2) Unlimited Liability: The liability of each partner is joint and several. The firm cannot conduct any large business activity. This is because, if the assets of partners are insufficient to pay off the debts, then the personal property of partners is taken over by the creditors.
(3) Instability: The continuity of the firm is always doubtful because it comes to end by the death, insolvency or insanity of any of the partner, or a partner may even dissolve the partnership by giving 14 days notice.
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(4) Restriction on Transferability of Interest: A partner cannot transfer his partnership interest to an outsider without the consent of all partners. A partner is also not authorized to bring any new partner without the consent of another partner. This shows that there is a restriction on transfer of interest.
(5) No Public Confidence: The registration of the firm is not compulsory. There is the absence of government control further the firm needs not publish its accounts. Due to this, the firm cannot get the confidence of the public
(6) The absence of Separate Legal Status: A firm is not an artificial person like Joint Stock Company. It is not recognized by the law as a person. The existence of the firm is related to the partners. The insolvency of the partner is the insolvency of the partnership.
(7) The absence of Central Authority: All partners are joint owners, they have full right to the management. There is no different authority to control the different partners. Therefore, it is difficult to bring them together.
(8) Conflicts and Disputes : Unity among the partners is essential for the success of the partnership. But the unity among the partners cannot be secured. When the number of partner increases, differences of opinion and disputes tend to arise and disturbs the smooth working of the business.
(9) Restricted Number of Partners : As the number of partners are restricted to 10 in the case of banking business and to 20 in the case of any other business. The capital that can be collected by a partnership is limited
(10) Risk of Implied Authority : Each partner is considered an agent of the Partnership Firm. He can confine the co-partners by his activities. On account of this authority of the partner, honest partners have to suffer for the absurd, careless or untruthful actions of immoral partners.
(11) Lack of Continuity : A partnership firm has a shortcoming in regards to the continuity because of death of the partner, insolvency, insanity or retirement of a partner, firm may come to end as time period expires or purpose for which it was formed is completed and if the court orders the partnership firm to dissolve its Business.
(12) Absence of Legal Status: The Indian Partnership Act, 1932, does not give independent legal status to the partnership. As registration is not mandatory except in certain states, no differentiation is made between a partnership firm and its partners.
The Partnership is a popular form of Business entity in India, It most commonly opened the business in India. If you are opening a new business in India and thinking of registering a partnership firm Then you must consider above disadvantages and then if you can manage these disadvantages or can find a way to work through these disadvantages open a partnership Business. Apart from them, you can also choose the option of choosing LLP, STARTUP, OPC and Private limited company etc.