Merits and demerits of partnership firm

Merits of partnership firm

  1. Easy to start and dissolve

A partnership firm can be setup easily and quickly. There is not much legal formalities and expenditures are involved in the establishment of a partnership. Similarly, a partnership firm can be closed down very easily and quickly.

  1. Higher capital

Many partners invest capitals and there is higher flexibility in capital because new partner can be agreed to be associated and investing can be increased.

  1. Higher innovation

Many partners use their own ideas and innovation capacity. So there is unlimited managerial ability

  1. Reduction of work load

Partners mustn’t work more to earn more profit. Higher profit generation is important. So, there is no dull and monotonous work. In case of monotony, health problem to any partner than other partners can help and reduce absenteeism.

  1. Better decision

There is specialization in decision taking. So there can be fewer chances of taking wrong decisions

  1. Harmonization of different ability

There are many partners in this firm and many partners have different skills, knowledge and capacity

  1. Credit facility

In this liability of partners becomes unlimited. It will help to arrange more capital. And that’s why it has more credit. It improves more financial function

  1. Close supervision

There is effective management and effective supervision. They look the business themselves.

  1. Flexible

There can be change in management, capital and production. This change can be made by mutual agreement of partners

  1. Reduced risk

Partners have right to take part in management. They have the duty to bear risk with proportion too.

 Demerits of partnership firm 

  1. 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

  1. Uncertain existence

Death of any partner can sometime cause death of entire firm. Dishonesty, conflict and lack of resource also can collapse the firm

  1. No Personal contact

A partner can’t be in a position to maintain intimate contacts with his customers and employees. He cannot be able enter to the requirements of each and every customer. Then there is no close personal touch which decreases the competitive strength of the business.

  1. Unlimited liability

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.

  1. Delay in decisions

The partnership firm is completely not free to take all decisions and to implement the. The partners need to consult or seek others approval. Delay in decisions reduces the efficiency of business.

  1. Danger of conflict

Many persons are the owners of partnership firm. There can be misunderstanding and jealousy among them and these cause problems in operation of business and profit making

  1. Difficulty in transfer of shares

Partners cannot transfer their share without the consent of other partners. There may be conflict when done otherwise.

  1. Limited resources

There is low investment, may be higher than in sole trading but not sufficient for large scale production resulting in limited areas of operation.