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Questions
Explain the limitations of partnership.
State two limitations of Partnership business.
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Solution
- 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.
- Limited resources: A partnership firm faces limited availability of finance because of the restrictions imposed on the following fronts:
- maximum number of partners allowed in a partnership firm by definition.
- maximum number of new partners who can be admitted to the firm.
Hence, as a result, a partnership firm faces financial constraints, which in turn impede its growth prospects.
- 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.
Notes
Students should refer to the answer according to their question.
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