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

Pooling more than one person's capital and skill brings real advantages, but sharing unlimited liability and decision-making brings real risks too.

Merits of partnership:

1. More capital and managerial skill — since two or more persons pool their resources, a partnership can typically raise more capital and draw on more varied managerial ability and specialisation than a sole proprietorship run by one individual.
2. Shared risk — business risk and losses are shared among all the partners rather than falling on a single person, which can encourage partners to undertake ventures a sole proprietor might otherwise avoid.
3. Flexibility and ease of formation — a partnership is comparatively simple and inexpensive to set up (registration itself being optional), and because it is not bound by rigid company-law procedure, partners can adapt the business quickly by mutual agreement.
4. Better credit standing — since every partner is personally and unlimitedly liable for the firm's debts, outside creditors often extend more credit to a partnership than to a sole proprietorship of comparable size.

Limitations of partnership:

1. Unlimited joint liability — every partner remains liable, without limit, for the firm's debts, including debts arising from another partner's acts done in the ordinary course of business — a partner's personal assets can be called upon for firm debts he had no direct hand in creating.
2. Possibility of disputes — because most decisions require the partners' mutual agreement, disagreements over policy, profit-sharing, or how the business is conducted can arise, and if serious enough, can disrupt or even dissolve the firm. …

Listing unlimited liability only as a limitation for the firm in general, without noting that it makes each individual partner personally liable even for another partner's acts — this joint-and-sever …