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what are the disadvantages of partnership?

WHAT ARE THE DISADVANTAGES OF PARTNERSHIP FORM OF BUSINESS ORGANIZATION?

Posted By admin on December 25, 2013 No Comments

Unlimited Liability: All the partners are jointly as well as separately liable for the debt of the firm to an unlimited extent.

Do not have a Separate legal entity: Since partnership firm does not have a separate legal personality of its own, therefore, it cannot enter into contract; sue/be sued by other parties; become a member of a body corporate(except section 25 company);held properties, assets, etc in its own name.

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Uncertain Life: The partnership firm has no legal entity separate from its partners. It comes to an end with the death, insolvency, incapacity or the retirement of any partner. Further, any dissenting member can also give notice at any time for dissolution of partnership.

Lack of Harmony: since in a partnership firm every partner has an equal right to participate in the management, sometimes there is a possibility of friction and quarrel among the partners.

Limited Capital: Since the total number of partners cannot exceed 20, the capital to be raised is always limited.

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No transferability of share: A partner cannot transfer his/her share of interest to outsiders without the consent of other partners.

Taxation

A partnership firm is being taxed at a flat rate of 30% unlike a sole proprietorship which is being taxed at slab rate.

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ADVANTAGES OF PARTNERSHIP FORM OF BUSINESS ORGANIZATION

Posted By admin on December 25, 2013 No Comments

Easy to form: Like sole proprietorship, the partnership business can be formed easily without any legal formalities. It is not necessary to get the firm registered. A simple agreement, either oral or in writing, is sufficient to create a partnership firm.

Availability of large resources – Since two or more partners join hand to start partnership business it may be possible to pool more resources as compared to sole proprietorship. The partners can contribute more capital, more effort and also more time for the business.

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Better decisions – The partners are the owners of the business. Each of them has equal right to participate in the management of the business. In case of any conflict they can sit together to solve the problems. Since all partners participate in decision-making, there is less scope for reckless and hasty decisions.

Flexibility in operations – The partnership firm is a flexible organisation. At any time the partners can decide to change the size or nature of business or area of its operation. There is no need to follow any legal procedure. Only the consent of all the partners is required.

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Sharing risks – In a partnership firm all the partners share the business risks. For example, if there are three partners and the firm suffers a loss of Rs. 12,000 in a particular period, then all partners may share it and the individual burden will be Rs.4,000 only.

Protection of interest of each partner – In a partnership firm every partner has an equal say in decision making. If any decision goes against the interest of any partner he can prevent the decision from being taken. In extreme cases a dissenting partner may withdraw himself from the business and can dissolve it.

Benefits of specialization – Since all the partners are owners of the business they can actively participate in every aspect of business as per their specialisation and knowledge.For example:If you want to start a firm to provide legal consultancy to people, then one partner may deal with civil cases, one in criminal cases, another in labour cases and so on as per their specialization.

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