Solution:

Disadvantages of Partnership:

(i) Unlimited Liability:

• The partners, like a sole proprietors but unlike shareholders of a joint-stock company, maybe personally held liable for the debts of the firm.

• Their private property also remains at stake. Due to the dangers associated with unlimited liability, partners are overcautious and play safe. This restricts the expansion and growth of the business.

(ii) Lack of Public Confidence:

• Since there is no publicity about the working of a partnership through its published periodical accounts and there is absence of legal control over it, the general public may not have full confidence in them.

(iii) Risk of Implied Authority:

• A partner, being an agent of the firm and his co-partners, can make deals and contracts that would be binding on other partners.

• Therefore, when a partner is negligent, commits a wrong, or is guilty of fraud, within the scope of his authority, other partners are equally liable financially without any limit.

• Thus, the honest and efficient partner may have to pay the penalty for follies and vices of other partners.

(iv) Limited resources:

• There is an upper limit to the number of partners in a partnership firm - 20 in a general business and 10 in a baking business.

• Due to this, despite the pooling of the resources by all the partners, it becomes difficult for a partnership to manage the increasing requirements of capital and managerial skills of expanding business.

• This limitation limits the growth of business beyond ascertain size.

(v) Instability:

• A partnership firm suffers from the uncertainty of duration; because it can be dissolved at the time of death, lunacy, or insolvency of a partner.

• Sometimes petty quarrels among the partners may also bring the partnership to an end. The discontinuity of the business is not only inconvenient to the consumers and workers but is also a social loss.

(vi) Non-Transferability of Interest:

• Partners cannot transfer their interests in the partnership firm to outsiders without the consent of all other partners.

• This non-transferability is a drawback of the partnership firm and dissuades many persons from investing in such a firm.

• On the other hand, shares of a joint-stock company are easily transferable and, thus, provide liquidity to the investment.

(vii) Lack of Centralized Authority:

• The power of management is vested in all the partners; a supreme and central authority is absent. Consequently, many problems crop up, particularly when there is an absence of” of mutual understanding and co-operation.

• Constant opposites and disagreements on the part of partners hamper the growth of the partnership business at every stage and, ultimately, may even put an end to the existence of the partnership, after a short span of life.