Introduction 

A partnership is a common type of business where two or more two partners come together with a mutual agreement to start a business. This type of business does not require complex legal or paperwork to establish. Here the responsibilities among partners are distributed equally depending on their field of expertise along with the share of income and losses. 

Today, in this article on the understanding of limitations of partnership, you will get detailed information on partnership firms, types of a partnership firm including limited liability partnership, limitations of a partnership firm, and other related topics. So, without further ado, let us get started with the Introduction to partnership limitations in the business studies study material.

What is a Partnership Firm? 

In simple terms, a partnership firm can be described as a joint business where there are two or more two co-owners. In this kind of business, a formal agreement is signed between the partners who have agreed to be the co-owners for sharing income and losses and the distribution of roles and responsibilities. In India, The Indian Partnership Act 1932 explains all the functions related to the partnership firm. 

Features of a Partnership firm 

The following are the features of a partnership firm – 

• Agreement between firm’s partners – The partnership firm starts once two more partners have agreed to an association. Before the establishment of the organisation, a legal document is signed that mentions all the terms and conditions of the partnership firm. Such an agreement is mainly present in the written form. 
• Two or more people involved – To start the partnership, two or more two people are required. To phrase in simpler words, a minimum of two people are required to start the work. For the maximum number of people, there are no such rules. 
• Sharing of profit – Another important feature of the partnership firm is sharing profit and losses. Depending on the ratio of investment, the profit and losses are shared in the partnership firm. 
• Business motive – To gain profit, it is important for every partnership firm to start with a business motive. 
• Mutual business – Partners in the business firm are not only owners but individual agents as well. Any action of one partner may directly show effects on the working of another partner and overall firm. 
• Unlimited liability – In the partnership firm, each partner has unlimited liability. 

Types of Partnerships 

Depending on factors like where the firm operates, here is a quick division of partnerships. Let’s have a look – 

• General partnership 
• Limited partnership 
• Limited liability partnership 
• Partnership at will 

Limitations of Partnerships 

Like every other thing on this planet, the partnership firm also has its own set of limitations. Below we have listed some major limitations of the partnership firm. These are as follows – 

• Limited capital – In a partnership firm, there are at least two or more two partners who together run the business, which increases the chances of limited capital when compared with joint-stock companies who have surplus capital. 
• Unlimited liability – The partnership firm’s liability is not limited to only business property. There are chances that partners might sell their personal property to recover the debt. 
• Difficulty in transferring shares – The shares of the partnership firm can only be transferred once all existing partners have agreed to it. As a result, it is comparatively difficult to transfer shares in a partnership firm; hence it emerges as a big-time limitation. 
• Uncertain existence – In case of death, retirement, or insolvency, the partnership firm can even reach the condition of dissolution. In case there are any disputes between the partner, the partnership can also end due to this reason. 
• Lack of public trust – As compared to other types of organisations, the partnership firm has less value in the eyes of the law. Also, they are limited in size, which means that people hesitate to believe in partnership firms. 
• Chances of dispute – Although during the establishment of the firm, all the partners agreed. At times, there could be circumstances where partners start to disagree with each other’s decisions leading to other issues. 
• Risk of implied authority – In this type of business, most of the decisions are taken by the active partners. However, the chances are low that he will take all decisions in favour of business. Hence it gives rise to the risk of authority. 
• Lack of prompt decision making – In a partnership firm, all partners are required for building consequences before landing on any decision. As a result, it is important that every partner take an equal interest and discuss every matter in detail. Since it is a time-consuming process, it, unfortunately, leads to delays in decision making. 

Conclusion 

With this, we end our study material on the limitations of partnership. In this Partnership-limitations, we studied the partnership firm in length along with its various types such as limited liability partnership, what is a limited partnership, functions and limitations of partnership. Like every other thing on this planet, the partnership firm also has its own set of constraints. Since more than one person is involved in this type of firm, the chances of dispute or conflict are high. 

We covered Introduction to a partnership, where we explored partnership firms that can be described as a joint business where there are two or more than two co-owners. Here, a formal agreement is signed between the partners who have agreed to be the co-owners for sharing income and losses and the distribution of roles and responsibilities. We hope the Introduction to Partnership-limitations study material must have helped attain a greater understanding of this topic.