Question

Mention any four demerits of partnerships firms.

Answer 1

➡Disadvantages of a partnership include that: the liability of the partners for the debts of the business is unlimited.

↪each partner is 'jointly and severally' liable for the partnership's debts;

↪that is, each partner is liable for their share of the partnership debts as well as being liable for all the debts.

Answer 2

Four major demerits of a partnership firm are as follows.

(1) The existence can be uncertain - The untimely demise of a partner may sometimes lead to the closure of the entire firm. A lack of resources, conflict or dishonesty between partners may also lead to a closure.

(2) Decisions can be delayed - Any one partner will not be free to take decisions at all times. All partners need to seek each others approval or to have a consultation for petty matters. Decision delays may reduce the business efficiency considerably.

(3) Resources may be less - There will generally be a low investment. It can be higher compared to a sole trading but not enough to sustain large scale production. This can result in limited operational capability.

(4) Chances of conflict are high - When there are a lot of people running a business, there may be jealousy and misunderstanding between them. It can lead to operational difficulties and profit sharing also.