A partnership type of organization suffers from certain drawbacks also. These are as follows:
1. Limited finances:
Finances of partnership firm are limited. Partners contribute capital or raise funds from friends, relatives or financial institutions. The possibility of self financing or raising fund of individual partner has got its limitations. So it becomes a major demerit of this form of organization. Limited finances restrict the size of the business operations and the opportunity of further expansion of the firm.
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2. Uncertain existence:
Existence of partnership firm is uncertain. It generally comes to an end of account of death, lunacy, retirement and insolvency of partner.
3. Dishonesty of partners:
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If any of the partners happens to be dishonest in the firm, he may prove to be very harmful for other partners. His act of dishonest may create had name and affect the functioning of the business unit.
4. Unlimited liability:
Partners are liable for the debts or the firm to an unlimited extent. Even private property of the partners can be utilized for paying off the debts of the firm. There is a constant strain on the partners and their family members for such arrangement.
5. Lesser public confidence:
The accounts of a partnership business need not be published and the affairs of the firm are not legally controlled. As a result, members of the public do not place much confidence in such firms.
6. Limited managerial talent:
On account of modern technological developments in the field of production and marketing, highest degree of managerial skill is required.
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The partnership firms often fail to provide such a managerial skill. As most of the partnership firms carry business on small scale basis, it becomes difficult for them to appoint skilled and professionals to manage the business.
7. Restrictions of transfer of interest:
Without the unanimous consent of all other partners, a partner can’t transfer his interest in the firm to outsider. This restricts the liquidity of his investment.
8. Risks of implied authority of partners:
Every partner in the firm binds other partners by his acts done on behalf of the firm. If a partner acts dishonest, other partners are liable for such acts.