Q.Explain the merits and limitations of a Partnership Firm as a form of business organisation.

A Partnership Firm solves the capital and skill limits of a sole proprietorship, but does so by introducing shared, unlimited liability and the possibility of partner conflict.

Merits of a Partnership Firm:

1. More capital than a sole proprietorship — capital is pooled from two or more partners, rather than resting on one person's resources alone.
2. Combined managerial skill — partners with different expertise (finance, marketing, operations) can share the managerial burden, which a sole proprietor cannot replicate alone.
3. Shared risk — business losses are shared among partners rather than falling on a single individual.
4. Relatively easy and inexpensive to form compared to a company, with no requirement for the elaborate incorporation formalities company law demands.
5. Flexibility — partners can mutually agree to change the firm's terms of business without needing the kind of formal procedure a company requires to alter its own constitution.

Limitations of a Partnership Firm:

1. Unlimited, joint-and-several liability — every partner's personal assets are exposed, and a single partner can be made to pay a firm's ENTIRE debt if the others cannot pay their share.
2. Possibility of disagreement — because major decisions typically need mutual consent, conflicting views among partners can slow decision-making or create lasting disputes.
3. Limited continuity — in the absence of a contrary agreement in the deed, the firm is, by default, dissolved on the death, insolvency, or retirement of any partner. …