Partnership is when two or more people assemble
together to carry on a business with the aim of making profits. The partners in
the business agree to share the assets and liabilities of the business jointly.
By the name partnership it means that the business is owned jointly by
partners, and the partners have equal rights and responsibilities. Any members
of the partnership have right to making binding contract on behalf of their
business.
Partnership Deed
Partnership
deed is nothing but the agreement that unites all the members of the partners,
the agreement inter alia includes;
1. Composition of membership and their various individual
contributions
2. Title or name of business and location.
3. Decision on a deceased member
4. Incentive or remuneration of active members
5. Modality of sharing profits
6. Admission of new members (i.e. conditions0
7. Dissolution or winding up of business
TWO TYPES OF PARTNERSHIP
Usually there are two types; ordinary partnership and
limited partnership.
Ordinary Partnership: In this type of partnership, all members takes equal
risk jointly, have equal right, equal privilege, enjoy equal powers and they
possess unlimited liability. This means that, if say 2 or 5 persons enter into
ordinary business partnership and there is a case of some debt to be settled form
the assets of the business which the asset cannot settle, the personal assets
of, the partnership will be sold by their creditors. And of course if any
member has no assets to be sold, the other remaining 4 members should bear the
full responsibility of the debt.
Limited Partnership:- Limited
partnership only differs from ordinary partnership in that not all members have
unlimited liabilities in which case their liabilities are limited to the amount
of capital each contributed. However, the law provides that at least one member
must be an unlimited or ordinary or a general partner who should now bear the
full risk of the business enterprise.
Kinds of Partners:- Usually partners consist of three types, Active,
sleeping and general partners. Let us examine each of them.
Advantages
1.
A partnership has
a greater prospect of raising capital and expanding its business than the sole
proprietorship.
2.
The partners have
equal rights and therefore the actions of one partner are borne by all members
and are jointly liable for all debts and risks rather than one man in the sole
proprietorship.
3.
A partnership
lasts much longer than a sole proprietorship because unlike the sole
proprietorship, the death of any member of the partnership does not make the
partnership to collapse.
4.
Management
functions may be assigned to members according to their skills and their areas
of specializations.
5.
There is
flexibility which makes it easier to admit new members with good and new idea
that will help the business to grow.
6.
Profits in partnership
are shared according to laid down rules i.e. personal efforts and capital
contributions are the common criteria in sharing profits.
7.
There is good
division of labour in partnership
8.
There is close
cordial relationship between partners and customers.
9.
Talents and
creative are pulled together because in the management and decision making
every member of the partnership brings out his own ideas and opinions which are
well considered.
10.
Profits are not
declared or published as such partnership enjoys degree of privacy.
Disadvantages: The disadvantages inherent in partnership are as
follows:
1.
The actions of
one partner are borne by all members, which means that multiplicity of risks
could be prevalent.
2.
A partnership
does not enjoy a quick decision taking may be difficult to get all partners to
make decisions
3.
Profits are
shared by many people quite unlike the sole proprietorship where one man owns
the total profits.
4.
One major problem
of a partnership as a business organization is assets can be sold by a creditor.
5.
There is a
serious danger when lazy and dishonest members are admitted.
6.
The membership is
not more than twenty as such this can limit more capital flow into the
business.
7.
The success and
continues existence of the partnership is threatened because the business
depends on upon the ability of partners to work harmoniously with each other,
but the harmony is not guaranteed