Answer the following questions:

Mention any four demerits of partnerships firms.

Partnership firms are characterized by the division of ownership between two or more partners. In the Partnership Firm Act of 1932, it is defined as the relation between the persons who have agreed to share the profits of a business carried on by all or any of them acting for all. Four demerits of partnership firms are as follows –

1. Limitation of the number of partners allowed to do business together leads to a limitation on the amount of capital available for business.

2. Sometimes the business may suffer losses because of a single partner’s decisions and disunity among partners can also lead to disputes which hamper the business.

3. It lacks the secrecy that sole trading concerns often enjoy as there are others at the same level in the business who knows the things that need a strict secrecy policy.

4. Death or insolvency of one partner can affect the business and lead to its dissolution in spite of other partners being present.