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Merit and Demerit of Partnership firm
Advantages of Partnership:
- Easy to start and dissolve: A partnership firm can be set up easily and quickly. There are not many legal formalities and expenditures are involved in the establishment of a partnership. Similarly, a partnership firm can be closed down very easily and quickly.
- Higher capital: Many partners invest capital and there is higher flexibility in the capital because new partners can be agreed to be associated and investing can be increased.
- Higher innovation: Many partners use their own ideas and innovation capacity. So there is the unlimited managerial ability
- Reduction of workload: Partners mustn’t work more to earn more profit. Higher profit generation is important. So, there is no dull and monotonous work. In the case of monotony, health problems to any partner then other partners can help and reduce absenteeism.
- Better decision: There is specialization in decision making. So there can be fewer chances of taking wrong decisions
- Harmonization of different ability: There are many partners in this firm and many partners have different skills, knowledge, and capacity
- Credit facility: In this liability of partners becomes unlimited. It will help to arrange more capital. And that’s why it has more credibility. It improves more financial function
- Close supervision: There are effective management and effective supervision. They look at the business themselves.
- Flexible: There can be a change in management, capital, and production. This change can be made by mutual agreement of partners
- Reduced risk: Partners have the right to take part in management. They have the duty to bear the risk with proportion too.
- Incentive to work:
- Secrecy: though there is less secrecy than sole trading concern, the partnership business doesnt bound to publish its financial /business information publicly so there are more chances of business secrecy if the partners keep with themselves.
- Effective Management:
- Facility of Loan:
- Prompt Decision:
- Equal Rights of Partners:
Demerit of Partnership firm
- No Business secrets: The partner can keep the secrets to himself but these secrets can be known to competitors or others when there is conflict among the partners
- Uncertain existence: Death of any partner can sometimes cause the death of the entire firm. Dishonesty, conflict, and lack of resource also can collapse the firm
- No Personal contact: A partner can’t be in a position to maintain intimate contacts with his customers and employees. He cannot be able to enter to the requirements of each and every customer. Then there is no close personal touch which decreases the competitive strength of the business.
- Unlimited liability: The proprietor is liable for all the debts of the business. In case the assets are insufficient to meet the debts, the personal property of the proprietor can be attached.
- Delay in decisions: The partnership firm is completely not free to make all decisions and to implement them. The partners need to consult or seek others’ approval. Delay in decisions reduces the efficiency of the business.
- Danger of conflict: Many persons are the owners of the partnership firm. There can be misunderstanding and jealousy among them and these cause problems in the operation of business and profit-making
- Difficulty in the transfer of shares: Partners cannot transfer their share without the consent of other partners. There may be conflict when done otherwise.
- Limited resources: There is a low investment, which may be higher than in sole trading but not sufficient for large-scale production resulting in limited areas of operation.
- Lack of Public Faiths: There are mainly two reasons why people don’t trust this business.
- This business doesn’t publish any financial and other business information
- These businesses are uncertain
- Risk of Implied Authority: An active partner may misuse his implied authority. He/she might use for personal benefit rather than the organisational benefit. The unexpected decision of the partner may create excess liability of the firm than capital investment which will be the extra burden for both organisations as well as partners.
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