Partnership

Partnership

Partnership is a voluntary association consisting of two to twenty members which is formed to carry on a business with a view to get profit.

However, some of the professions like law, medicine and accountancy etc… there is no upper limit on the number of partners. These partnerships are known as professional partnerships.

Types of partnership

There are mainly two types of partnership. They are:

1.     Ordinary partnership (General partnership): in an ordinary partnership all the partners have equal responsibilities in the running of the business. And all the partners have unlimited liability.

2.     Limited partnership: in a limited partnership there are limited partners and ordinary partners. At least one partner should be an ordinary partner. .

o    Limited partners are those who have limited liability. Limited liability means partners have to be liable only to the amount of capital that the partner has contributed to the business. These partners do not take part in running the business.  

Features of partnership

Ø Owned and managed by 2-20 people except in professional partnership

Ø Unlimited liability in ordinary partnership and limited liability in limited partnership.

Ø Profits and losses are shared among the partners according to the partnership agreement which is called the “Partnership Deed”.

Ø An agreement made by one partner on behalf of the partnership is binding and has to be accepted by all the partners.

Ø The partnership will dissolve (come to an end) if one of the partner dies or is declared bankrupt.

Ø Capital: Funds are raised by all the partners in partnership business.

Advantages of partnership

ü Easy to establish: There are less legal procedures to start a partnership business hence it is easy to establish.

ü Large Capital: As all the partners in partnership business contribute to start a business, they can mount up huge amount of capital for their business.

ü Management: All the partners contribute towards business activities making work easy and fast. Risk: As all the partners share losses it will not be a burden or risk to individual partner. All risk is shared among partners.

ü Better decision: As partners discuss the business activities among them and take any decision they make much strong and better decision

ü Skills & Experience: All partners utilize their skills and experience for the betterment of the business making it more profitable by adding more skills to business. Specialization can be applied in business by making each partner responsible for a specialized task/department such as sales. Production, administration etc…

Disadvantages of partnership

û  Conflicts: If there is any disagreement on any matter between partners, it may affect the business

û  Slowdown / Shutdown: If there is death, insolvency or insanity of any partner it may bring the business to stoppage or closure of business. Partnerships can also be unstable.

û  Unlimited liabilities: The partners in partnership business have unlimited liability. Even their personal assets may be seized to cover business debts.

û  Delay in decision: Individual ideas of different partners may vary making it longer to come to a common decision.

û  Difficult to maintain business secrets: as all the discussion of partnership has to be done with all the partners it might be difficult to maintain business secrets. And if there is no trust between partners regarding any business issues it may affect the business negatively.