WHAT IS PARTNERSHIP IN BUSINESS? NEW DEVELOPMENTS 2024

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WHAT IS PARTNERSHIP IN BUSINESS? NEW DEVELOPMENTS 2024

A partnership is a business organisation formed and owned by two or more people known as partners to carry out business with an aim of making profit.
OR

Is the association of two to twenty peoples carrying on a business in common with a view of making profit.

FEATURES OF PARTNERSHIP

  1. They are formed by a minimum of two and a maximum of twenty in the case of ordinary partnerships and a maximum of fifty in the case of partnerships formed by professionals such as doctors, lawyers and accountants.
  2. The partners provide capital jointly in the proportions agreed either from personal savings or loans from banks and other financial institutions.

iii. The action of one partner is binding to all other partners. For instance, any debt incurred by one partner on behalf of the business is binding to all partners. The liability is spread among all partners in proportion of their contribution to partnership capital.
iv.Partners usually share duties and responsibilities in the management and operation of business as spelt out in the partnership deed.

  1. Legally, there is no distinction between the partnership business and its owners, That is the business is not a legal entity. If the business fails to pay its debts, the partners will be required to contribute from personal sources to pay up the debts.
  2. Each partner acts as an agent of the business. Partners can therefore sell and buy on behalf of the partnership.

vii. The profit made by the business belongs to the partners jointly. This profit is divided in the proportions agreed upon in the partnership deed.
viii. In case the business makes a loss, the loss is shared by partners in the proportions agreed in the partnership deed.

  1. All business decisions are made jointly by the partners through constitutions, discussions, consensus and through majority vote.

FORMS OF PARTNERSHIP 

  1. Temporary partnership

This is formed for a specific period or for a specific purpose.

     2. Permanent partnership

Is the partnership which is formed for a long time the end is not known 

TYPES OF PARTNERS
1. According to the rule played by them 

  • Active partner

An active partner is also known as working partner. He or she manages the day to day affairs of the business on behalf of the other partners on top of the profit share, he or she is entitled to a salary

  • Dormant partner

He is also known as sleeping partner or financing partner. Such partner does not participate in the management of the partnership business. He invests capital in the business but his share of profits will generally be lower than of the other partners.

2. Classified according to liabilities for firm debts or unlimited

-General partner

A person who liability towards the firm is limited.

-Unlimited partner

A person whose liability of the firm debt is limited usually the capital contributed by him.

LIMITED LIABILITIES 

Occur when business and the owner are separately entity i.e. not close relationship between the owner of asset towards firm debt.

  1. Classified according to age 

-Major partner

Is a partner who is over 18 years of age. He is liable for all the debts of business.

-Minor partner

Under 18 age he contributes capital, share profit but he is not ready or able for the firm debt but his capital contribution.

  1. According to capital contribution 

-Real partner

Person who contributes capital share profit and loss.

-Quasi partner

Who don’t contribute any capital, take part in business but allows the firm to use his name as partner. He is not liable for the firm debts in the most of the cases, but he gets share from the profit.
The agreement is called partnership deed

PARTNERSHIP DEED OR PARTNERSHIP AGREEMENT

This is the written document which governs members in the partnership firm. It includes the following;

Contents of the partnership deed 

Partnership deed would usually state the following

1) Name of address firm

i.e. Baraka business enterprises.

2) Name, address and occupation of each partner, Director, accountant.

3) Type of partner; Active, dormant, and capital to be contributed by each partner.

4) The ratio in which profit and loss would be shared by the partner

5) Right of each partner i.e.

  • Drawings
  • Salary
  • Interest 

6) Method of calculating goodwill start at the time of distribution.

7) The duration of the partnership i.e.

  • Temporary

OR

  •  Permanent

8) The procedure to be taken during dissolving partnership.

9)Purpose of establishing the partnership

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RIGHTS AND DUTIES OF A PARTNER 

  1. Indemnity of a partner for liability

If the partner use excess expect in conduct the business firm business must indemnity.

     2. Displaying utmost good faith

If the partner provide property or funds.

It should be discounted by the firm and the partners should the material facts.

     3. No new partner may be included without permission or information.

No new member admitted without the consent of all partners.

     4. No partner are personally liable for debts incurred by the firm except quasi partner.

     5. Every partner has a right to act on behalf of the business e.g. Sign and provide information.

     6. If a partner have a private business that competes with the partnership all profits made by him should be surrendered to the firm.

ADVANTAGES 

  1. Raise more capital

Partner can use more capital because of capital contribution

     2. Work is divided

There is specialization and division of labour

     3. Decisions shared

     4. Better combination of talents [ skills]

Partners sharing ideas from each other hence leads to added knowledge to the members

     5. Losses and liabilities are shared

     6. Formation is fair and simple

There is no legal or complicated formality during formation

      7. The expansion of the business due to capital accumulated

      8. In the event of a difficult partner, partners are likely to come up with a solution

DISADVANTAGES 

  • The liabilities of a partner is unlimited
  • Profit is shared

When profit is distributed to partners it may reduce the amount

  • Temporary

Duration /period of time

  • The business is affected by the death of one partner or bankrupt
  • Delay in decision

Since all major action must be taken by the consent of all partners they often be delayed hence cause risk or loss.

DISSOLUTION OF PARTNERSHIP

Definition 

The dissolution is wind up to the firm in venture

A partner notifies the other partner in the following are:

  1. If the partner is temporary.
  2. If partnership notifies the other the other partner right to dissolve.
  3. If a partner became insane bankrupt or due to order made the winding of the partnership.
  4. If the partnership became unlawful doing against of the partnership agreement.