Partnership: All The Partners Jointly Manage The Business or Can Any of Them Manage The Business
Partnership: All The Partners Jointly Manage The Business or Can Any of Them Manage The Business
Partnership: All The Partners Jointly Manage The Business or Can Any of Them Manage The Business
The partners provide the necessary capital, run the business jointly and share the
responsibility. You must be thinking how much capital each partner contributes? Do
all the partners jointly manage the business or can any of them manage
the business on behalf of others? Who will take the profits? If there is any loss then
who will suffer the loss? Yes, these are the few questions that might be coming to
your mind. Actually, when you invite your friends to start such a business, it should
be the duty of all of you to decide (i) the amount of capital to be contributed by each
one of you; (ii) who will manage; (iii) how will the profits and loss be shared. Thus,
there must be some agreement between the partners before they actually start the
business. This agreement is termed as „Partnership Deed‟, which lays down certain
terms and conditions for starting and running the partnership firm. This agreement
may be oral or written. Actually, it is always better to insist on a written agreement
among partners in order to avoid future controversies.
Partnership Act
Agreement
Division of Profit
Implied agency
Ownership
Secrecy
Continuity
Co-ordination
Merits of Partnership:
Sharing Risk/Loss
Direct Motivation
a) Easy to form:
Like sole proprietorship, the partnership business can be formed easily without any
legal formalities. It is not necessary to get the firm registered. A simple agreement,
either oral or in writing, is sufficient to create a partnership firm.
b) Availability of large financial resources –
Since two or more partners join hand to start partnership business it may be possible
to pool more resources as compared to sole proprietorship. The partners can
contribute more capital, more effort and also more time for the business.
c) Better decisions –
The partners are the owners of the business. Each of them has equal right to
participate in the management of the business. In case of any conflict they can sit
together to solve the problems. Since all partners participate in decision-making,
there is less scope for reckless and hasty decisions.
d) Flexibility in operations –
The partnership firm is a flexible organisation. At any time the partners can decide to
change the size or nature of business or area of its operation. There is no need to
follow any legal procedure. Only the consent of all the partners is required.
e) Sharing risks –
In a partnership firm all partners share the business risks. For example, if there are
three partners and the firm suffers a loss of Rs. 12,000 in a particular period, then all
partners may share it and the individual burden will be Rs. 4,000 only.
f) Protection of interest of each partner –
In a partnership firm every partner has an equal say in decision making. If any
decision goes against the interest of any partner he can prevent the decision from
being taken. In extreme cases a dissenting partner may withdraw himself from the
business and can dissolve it.
g) Benefits of specialization –
Since all the partners are owners of the business they can actively participate in every
aspect of business as per their specialisation and knowledge. If you want to start a
firm to provide legal consultancy to people, then one partner may deal with civil
cases, one in criminal cases, another in labour cases and so on as per their
specialization. Similarly two or more doctors of different specialization may start a
clinic in partnership.
h) Direct motivation:
Ownership and management are vested in the hand of the same persons. There are
direct relationship between effort and reward. Every partner is motivated to work
hard and to ensure the success of the firm.
i) Secrecy:
A partnership firm is not required to publish their annual accounts. Audit of accounts
is not essential and no reports are to be filed with the government authorities.
Therefore, the affairs of partnership business can easily be kept secret and
confidential.
J) Scope for Expansion:
There are greater possibilities for the expansion and growth of business. More
partners can be taken in to meet the financial and managerial requirements of the
growing business.
We have learnt that partnership form of business has its own advantages and
disadvantages. But at times we find that partnership form of business organisation is
most suitable for us to run a small business. Let us look into such instances:
1. Wholesale trade and retail trade of large size, wherein capital required is
generally beyond the capacity of single individual.
2. Where direct access to customer is possible
3. Small scale and medium size industries wherein the capital and management
skills are moderate and risk involved is not very high. Examples toys, stationary,
books etc.
4. Professional firms like CA, lawyers, doctors, management consultants.
5. Commercial services like advertising, transportation, warehouse etc…
Formation of partnership: A partnership deed usually contains the
following details:
A partnership can be formed only 1. Name and Address of the firm
through an agreement between two or 2. Name and Address of the partners
more persons. These agreement may 3. Name of the firms Business
be oral or in writing. A written 4. Duration of the partnership
agreement is preferable because it 5. Amount of capital invested by all the
serves as a record for future. It will help partners
to resolve disputes, if any they may arise 6. Profit and loss sharing ratio
between the partners. 7. Amount permitted to withdraw by
each partner
A written agreement of the partnership 8. Rate of interest on partner‟s Capital
is called “Partnership Deed” or and Drawing
partnership agreement. It contains all 9. Salary ,Fees or Commission payable to
the terms and conditions on which partner
partnership have been formed. It is 10. Procedure for admission or retirement
signed by all the partners. Partnership of any partner
deed is not a public document. It can 11. Procedure for dissolution of the firm
be altered by mutual consent of all the 12. Rights and duties of the partners.
partners only. No legal formalities are
needed in its alteration.
The registration of the partnership firm is a simple and easy process. In order to get itself
registered, a partnership must submit a statement in the prescribed form along with the
prescribed fees to the Registrar of firms. The statement should contain following
particulars:
The statement must be signed by all the partners. If the Registrar of the firm is
satisfied with the statement, he shall make an entry in the register of the firms. The
firm becomes registered when such entry is made and a certificate of registration is
issued.
Types of partnership:
B) Merits:
1. It enables the mobilization of capital from persons who do not want to
take unlimited risks.
2. It facilitates independent control by the general partner since the
special partners cannot interfere in day to day management of the
business.
3. Quick decisions and reduced possibility of errors.
4. It is more stable as death , lunacy or bankruptcy does not affect the
existence of the business.
C) Limitations:
1. The firm‟s creditworthiness is reduced due to the limited liability of
special partners.
2. Special partners have no say in the management of the business.
3. The main partner may take undue advantage of his position in the
business. He may exploit the special partners. He may also indulge in
fraudulent activities.
Concept and
Advantages of LLP.d
Difference between Limited Partnership and General Partnership
Types of Partners
In a partnership firm you can find different types of partners. Some may actively
participate in the business while others prefer not to keep themselves engaged
actively in the business activities after contributing the required capital. Also there are
certain kinds of partners who neither contribute capital nor actively participate in the
day-to-day business operations. Let us learn more about them.
Partner by holding out –In the above example, if either Ram or Hari declares that
Gopal is a partner of their firm and knowing this declaration Gopal remains silent then
Gopal will be liable to those parties who suffer losses by transacting with Ram Hari &
Co with a belief that Gopal is a partner of that firm. Here Gopal is liable to those
parties who suffer losses and Gopal will be known as partner by holding out.
Sub- Partner:- A partner may associate anybody in his share of the firm. Such an
associate who shares a partner‟s profit is known as sub-partner. The sub-partner is non-
entity for partnership firm. His relationship is not with partnership firm but with the
partner. The sub-partner is not liable for any debts of the firm.
Assignment Questions:
2 Marks Question
1. Define Partnership.
2. State three feature of Partnership.
3. What is implied agency in Partnership?
4. How is Partnership formed?
5. State the advantages of registration of partnership.
6. Distinguish between partnership at will and particular partnership.
7. Explain minor as a partner.
8. What is general partnership?
9. Who is a nominal partner?
10. What led to the emergence of a partnership form of
business?
11. Explain the Following: General partner and Silent partner
12. Mention 4 types of partner.
13. Mention 4 types of partnership.
14. What do you mean by Active / Working partner?
15. What do you mean by Sleeping / Dormant partner?
16. What do you mean by Nominal partner?
17. What do you mean by partner in profit only?
18. What do you mean by partner by estoppel and partner by
holding out?
19. What is partnership deed?
20. In which types of business partnership business is suitable?
5 Marks questions: