Question

Explain any five merits and five demerits of partnership.

Answer 1

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.

2. 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

3.Higher innovation

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

4.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 then other partners can help and reduce absenteeism.

5.Better decision

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

Demerits of partnership firm

a. 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

b. Uncertain existence

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

c. 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.

e. 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.