In this article, we will discuss the disadvantages that you may have while running a partnership company.
- LIMITED CAPITAL: There is a restriction on the members of the partnership in the partnership firm, and therefore the total amount of capital that can be invested in the partnership is limited to the total amount of the individual amount invested by each partner. Therefore the Partnership firm cannot collect huge capital.
- UNLIMITED LIABILITY: Each partner is jointly and severally responsible. The firm cannot carry out a large business activity. This is because, if the assets of the partners are insufficient to pay off the debts, the creditors take over the personal property of the partners.
- INSTABILITY: The Company’s continuity is always doubtful, because of the death, insolvency or insanity of any partner or a partner can even dissolve the partnership by giving a notice of 14 days.
- Restriction on Transferability of Interest: Without the agreement of all partners, a partner cannot transfer its partnership interest to an outsider. A partner is not allowed to bring a new partner without another partner’s consent. This shows that the transfer of interest is restricted.
- No Public Confidence: The registration of firm is not compulsory and not even the Company’s registration is not compulsory. There is no government control, and the company does not need to publish its accounts. Because of this, the company cannot gain public confidence.
- The absence of Separate Legal Status: A company is not an artificial person such as a joint stock company. It is not recognized as a person by law. The company’s existence is linked to the partners. The partner’s insolvency is the insolvency of the partnership.
- The absence of Central Authority: All partners are joint owners, with full management rights. There is no other authority to control the various partners. It is therefore hard to bring them together.
- Conflicts and Disputes: For the success of the partnership, unity among the partners is crucial. But the unity between the partners cannot be guaranteed. When the number of partners increases, difference opinions and disputes tend to grow and disturb the smooth functioning of the company.
- Restricted Number of Partners: Since the number of partners in the banking business is limited to 10 and in the case of any other business to 20. The capital that a partnership can collect is limited.
- Risk of Implied Authority: Each partner is considered to be the partnership firm’s agent. He can confine his activities to the co- partners. Because of this partner’s authority, honest partners must suffer because of the absurd, negligent or untrue actions of immoral partners.
- Lack of Continuity: A partnership company has a deficiency in continuity due to the death of a partner, insolvency, insanity or retirement of a partner, a firm may end with the expiry of the period or the purpose for which it was formed and if the court orders the partnership company to dissolve its business.
- Absence of Legal Status: The Indian Partnership Act, 1932, does not give the partnership an independent legal status. Since registration is not compulsory except in some states, no distinction is made between a partnership firm and its partners.
The partnership is a popular form of business entity in India, which opened the business in India most commonly. If you open a new business in India and plan to register a partnership firm, you must consider above disadvantages and then if you can manage these disadvantages or find a way to overcome these disadvantages, then you can guarantee open a business partnership.
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