THE PARTNERSHIP
Definition – Partnership is a type of business organization formed by an association
of two to twenty persons having similar interests, and by agreement (usually legal)
decide and plan to run a business together with the sole aim of making profit.
Examples of partnership in Nigeria are Dantata & Sawoe Construction Company,
Afe Babalola and Co, Nigeria-Turkish International School, etc.
FORMATION OF PARTNERSHIP: A partnership is usually governed by a
written agreement which is usually drawn up by a legal practitioner. The agreement
is called a deed of partnership (made for the internal activities of the business) or
articles of partnership (deals with the provision for the business relationship with the
outsiders)
The agreement contains the following rules and regulations;
1. The names of the partners
2. The name of the firm.
3. The nature of the business formed
4. The rights and duties of each partner
5. The proportion of the capital to be provided and whether interest should be paid.
6. The signatories on the cheques
7. The sharing of profits and provision of drawings
8. Duration of partnership
9. The circumstances which can dissolve the partnership
10. The payment of partners’ salary
11. The method of admission of new partners
12. The objective of the firm.
Features of Partnership
1. Ownership: the number of partners ranges from two to twenty for most
business, but two to ten for banking business.
2. Life span: the life span of partnership depends on the agreement signed by
the partners involved.
3. Management: the business has no board of directors. The active partners
control and manage the business.
4. Objectives: the main objective of partnership is to make profit.
5. Legal entity: it is not a legal entity as the partners do not have a separate
identity from the business.
TYPES OF PARTNERSHIP
There are two types of partnership, these are:
Ordinary Partnership: - In this type of partnership, all the partners have equal
responsibility in the management of the business and are generally liable for any loss
or risk. They have equal powers, unlimited liabilities, take active part, and profits
are shared equally.
Limited Partnership:- In this, the debts of any member are restricted to the amount
of money contributed in running the business. Not all the partners take active part in
the management of the business but there must be a member who takes part in the
running of the business and also bears the risk.
TYPES/KINDS OF PARTNERS
1. Nominal or Quasi-Partner: He contributes only his name but does not take
active part in the running of business. His influence in the business can give
access to certain privileges. He is entitled to the profit of the business as stated
in the deeds of partnership.
2. Sleeping or Dormant Partner: He contributes capital but takes no part in the
conduct and management of the business. He takes part in the profit or the loss
of the business as specified in the partnership agreement.
3. Active Partner: This is the partner that takes part in the formation, financing
and management of the business. Salary is paid to active partner who serves as
the managing director of the business if it is indicated in the partnership deed.
Advantages or Merits of Partnership
1. Joint decision making: When two or more partners put heads together and
take joint decisions on the enterprise, better results are derived.
2. There is privacy: There is privacy in conducting business affairs since it is
not required to make its accounts available for public inspection.
3. Greater Continuity: The death of a partner may not lead to a total dissolution
of the business since the other partners can still go ahead.
4. Loan facilities: A partnership can easily obtain loan from creditors since they
are jointly liable.
5. Personal Contact: There is still an element of personal contact with both
employees and customers. This is because of the relatively small size of the
business when compared with the limited liability companies.
Disadvantages or Demerits of Partnership
1. Disagreement between partners can end the business.
2. The partners especially in ordinary partnership can have unlimited liability
in the case of liquidation of business.
3. It may be difficult to manage because different opinion of a partner can
hinder the decision making in the business.
4. It experiences limited growth since it has no legal right to obtain more capital
through share.
5. Business is not a legal entity because it cannot stand as a person in the court
of law.
Sources of Finance for Partnership
i. Contribution from members;
ii. Borrowing from bank;
iii. Ploughed back profit;
iv. Borrowing private individuals;
v. Sale of business assets.
