What is a PARTNERSHIP BUSINESS ?

What is Partnership?

        It is an association of two or more individuals who decide to run a business together.

Features of partnership business

o  The formation of this type of business is fairly easy compared to other large scale business. The agreement can be oral or written.

o  The business must not conduct any illegal activities.

o  The partners of the business have unlimited liabilities.

o  The partners share profit or losses in a predetermined ratio.

o  The continuity of the partnership will be till the time mentioned in the agreement.

o  The total number of partners required to start a business is two and maximum number is ten for banking business and twenty for other businesses (it might vary from country to country).

o  The shares of the partnership cannot be transferred.

 

Since every laptop (these days) has a screen and a keyboard! There are advantages and disadvantages of partnership.

Advantages of partnership

Ø Since the business is not bound by law, it is not required to submit or publish the financial statements and secrecy can be maintained.

Ø It is very easy to start and end a business. It can be done with mutual agreement between the partners.

Ø Since there is more than one partner in a partnership, more funds are available to start with.

Disadvantages of partnership business

Ø All partners have unlimited liability. If the business has insufficient assets to pay its debt, then the partners will need to put in their assets to pay off the debt. (For this reason in many countries a new form of partnership has taken place known as limited liability partnership).

Ø There are lots of chances to get into conflict.

Different types of partners in a partnership business.

n Active partner- this type of partner contributes to the capital and manages the business activities on behalf of other partners.

n Sleeping/dormant partner- this partner is same as the active partner but does not take part in the day to day activities of the business.

n Secret partner- this type of partner is associated with the business but the outsiders have no knowledge about this partner.

n Nominal partner- this type of partner is not actually a partner, but the firm projects him/her as a partner. This partner does not contribute to the capital and does not have any share in the profit or loss of the business. This partner does not have to manage the business but does have unlimited liability.

n Partner by estopple- this type of partner is not the partner of the business but projects himself as a partner of the business. Rest is almost same as nominal partner.

n Partner by holding out- this type of partner is also not a partner of the business but acts like a partner. The only difference is that, this type of partner can save himself from liability if he clarifies that he is not a partner of the firm.

n Minor partner- this is a partner is below the age of eighteen. This partner is not legally a partner of the firm. This partner is entitled to all the benefits with consent of the partners.

Types of partnerships

1.    Partnerships on the basis of duration.

§  Partnership at will- partnerships will continue at the will of the partners. Business continues till all partners mutually agree.

§  Partnership by purpose- partnerships formed to finish a particular project. After the project is completed, the partnership ends.

§  Partnership by time- partnership formed for a specific time period. After the time period is over, the partnership is dissolved.

2.    Partnerships on the basis of liability.

§  General partnership- this is the type of partnership where liabilities of partner are joint and unlimited. Dissolution happens on the event of insolvency, retirement or death of a partner.

§  Limited partnership- in this type of partnership the liability of at least one partner is unlimited. The continuity of the business is not effected by insolvency of a partner, retirement etc.

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