ECONS 101

PARTNERSHIP

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Types of Partnership:

a. Limited Partnership is a type of partnership which is formed and registered under the Limited Partnership Act. In a Limited Partnership, there must be one general partner with unlimited liability and one limited partner whose liability is limited to the amount invested. The Partners cannot take equal part in management and administration of the business. The Limited Partner can have access to the account of the partnership.

Features of Limited Partnership:

* A Limited Partner cannot participate in the Management of the Business.

* Liability is Limited but there must be a partner with Unlimited Liability.

* It must be Registered.                  

b. General/Ordinary Partnership is a partnership where partners have equal responsibility and risk in the business. All Partners are agents of the Firm and they all share the

responsibility of running the business. Hence, They are liable to the full extent of the debts of the firm. The Liability of Members is unlimited; they all take active part in the administration and management of the business.

Features of General/Ordinary Partnership:

* All the Partners have unlimited liability.

* Partners are agents of the enterprise.

* They have equal responsibility in management.

* They have equal power in binding the contract.

Types of Partners:

a. Limited Partner is the one who agreed to contribute a certain sum to a partnership business and is prevented by law from taking any active part in management and administration of the business. He is liable for debts and obligations of the partnership only up to the amount of capital he has contributed. He has limited liability.

b. General Partner has full power of participating in the conduct and management of the partnership business. He is entitled to take full share in the management of the firm. This kind of Partner is liable to the full extent of his estate for the partnership debts which means he has unlimited liability.

c. Active Partner takes active part in management and administration of  a partnership business. He contributes to the financing and formation of the business, takes active role in the day to day running of the enterprise and is being paid a certain sum as salary.

d. Nominal/Quasi Partner contributes only his name to the formation of the business. He neither contributes capital nor takes part in the management of the firm. He may be a distinguished personality within the society as his name must surely increase the reputation and possibly the goodwill of the partnership business. This partner will share in the profit or debts of the firm as specified in the Partnership Act of 1890. He might be a politician or a successful businessman.

e. Sleeping/Dormant Partner takes no part in the conduct and management of the partnership business. He will contribute capital and share the profit but will not engage in the day to day running of the enterprise. A Sleeping Partner receives no salary but is liable for the debts of the firm. The mere fact that a partner is a dormant one does not exonerate him from liability in the event of wrong decision by the active partners.

Rights of Partners:

# The Partners are entitled to share from the profits of the Partnership Business.

# A Partner making advance beyond the amount of capital which he has agreed to subscribe is entitled to interest of 5%.

# A Partner has the right to act as the agent of the business.

# Every General Partner can take part in the management of the Partnership.

# Every Partner must have access to the partnership books of accounts.

# They must be indemnified by the firm in respect of payment made and personal liability incurred by them in the conduct of the business.

FORMATION OF PARTNERSHIP

A Partnership business may be established without any formality although Partners have certain unavoidable obligations to third parties; they may make such agreement between themselves in respect of the internal management of the firm. It is accordingly usual for people entering into partnership to express their intention in a partnership agreement known as Deed of Partnership.

Deed of Partnership may be defined as agreements, rules and regulations guiding the members of a partnership, the agreement contains the following:

v  The Names of the Partners.

v  The Name of the Firm.

v  The Nature of the Business Formed.

v  The Rights and Duties of Each Partner.

v  The Proportion in which Capital is to be Provided and whether Interest should be Paid on Capital.

v  The Signatories on the Cheques.

v  The Sharing of Profits and Provision for Drawings.

v  Duration of the Partnership.

v  The Circumstances which shall dissolve the Partnership.

v  The Payment of Partners' Salaries.

v  The Method of Admission of New Partners.

v  The Objective of the Firm.

Advantages of Partnership:

§  Sufficient Capital- Partnership has more Financial Resources than a Sole Proprietorship because more people are involved, hence more Capital can be raised through Partner's Contributions.

§  Increase in Production- There is increase in Production as a result of increase in Capital and management.

§  Joint Decision Making-Better Results are derived when two or more partners put their heads together and take a joint decision for the enterprise.

§  There is Privacy- In this kind of Business unit, there is privacy because Partners are not legally compelled to publish the Annual Accounts for Public Consumption.

§  Better Chance of Continuity- This is because the death or exit of a partner may not lead to the end of the business.

§  Loan Facilities- A Partnership can easily obtain loan from creditors since they are jointly liable. The Loan can be used for the expansion of the business.

§  No Legal Formalities Required- In forming a Partnership, no major Procedure of establishment is required, unlike a company.

Disadvantages of Partnership:

·         False Records- Some of the Partners, especially the active partners, can use false records to gain advantage over others.

·         Limited Growth- The Growth of the Partnership will be limited to the managerial ability of the Partners.

·     Disagreement Between Partners- There is a possibility that a disagreement between the partners can end the Business.

·         Unlimited Liability- The Partners are liable for the debts of the partnership business up to the full extent of their estate.

·         Business is not a Legal Entity- Partnership Business is not a separate and distinct personality. It cannot sue and be sued in its own name.

NOTE: PARTS OF THIS POST WERE CULLED FROM TONAD ESSENTIAL ECONOMICS FOR SENIOR SECONDARY SCHOOLS BY C.E ANDE.  WE AT EDU-MADE-EASY RESPECT THIS CRAFT TOO MUCH TO DENY ITS ORIGIN. THANK YOU

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