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Question
Explain the limitations of partnership.
Solution
Limitations of Partnership
(a) Unlimited liability: In a partnership, all the partners have unlimited liability. This means that if the firm’s assets fall short of the requirement for the repayment of the firm’s debts, then the personal assets of the partners can be used.
(b) Limited resources: Apartnership firm faces limited availability of finance, because of the restrictions imposed on the following fronts:
(i) maximum number of partners allowed in a partnership firm by definition
(ii) maximum number of new partners who can be admitted in the firm
Hence, as a result, a partnership firm faces financial constraints, which in turn impedes its growth prospects.
(c) Possibility of conflicts: In a partnership firm, the power of decision making is shared among the partners. This further depends on their respective levels of skills, capabilities and foresightedness. The differences in these qualities may possibly lead to conflicts among the partners.
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