Forms of Business Organisation-1 — OCM STD 11 Commerce — Question
Gujarat BoardEnglish MediumSTD 11 CommerceOCMForms of Business Organisation-15 Marks
Question
Explain the limitations of partnership firm.
✓
Answer
Limitations of a partnership firm:
$1.$ Limited capital:
• Considering the growth and development of today’s world and the large scale modern industries and trade the capacity of the partners to raise the capital is limited.
• It is difficult for a proprietorship firm to engage in expanding the business on a large scale, investing in research and development, etc.
$2.$ Unlimited liability:
All the partners need to work honestly and efficiently. If a partner does not work properly and the business incurs loss then every partner becomes responsible for paying the debt collectively. Since the partners have unlimited liability, the partners may have to sell their personal assets to repay business debts in case the assets of the firm cannot repay.
$3.$ Possibility of disagreement:
A partnership firm can run successfully and grow well only if all the partners work and think unitedly. If disagreements and disputes crops in among the partners, they may affect the firm too.
$4.$ Difficulty in maintaining secrets:
Important business decisions are taken through discussion and meetings among partners. All the business aspects are discussed in such meetings and so all the partners know all the secrets of the business. As compared with sole proprietorship more than one person knows the business secrets which in a way can prove dangerous. If any partner leaks them out it may be harmful for the business.
$5.$ Difficulty in transferring the share:
In a partnership firm one cannot easily transfer his share to another person unless remaining all partners agree.
$6.$ Delay in decision making:
• As per the Partnership Act each partner can be a part of management and decision making. If there are disputes or disagreements between the partners the decision making may become poor and delayed. This can then result into weaker management.
• Sometimes disputes differences in opinions and decisions and enmity between partners increase so much that the partnership firm gets dissolved.
$7.$ Short life span:
If any of the partner dies, becomes mentally unstable or insolvent, the partnership comes to an end.
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