Partnership in Types of Business Entities

–

 

Forms of Business Entities

There are different types or form of business.

But according to syllabus only three types of business are mentioned; they are:

1. Sole proprietorship

2. Partnership firm

3. Joint Stock Company

 

Partnership Firm

When two or more persons do the work for particular purpose with name of firm according to partnership deed is called partnership.

The work must be legal. Business must be profit earning.

Minimum numbers of partners are two and maximum are twenty but in banking sector maximum ten persons.

Therefore, partnership is the result of agreement between two or more persons.

The agreement must in profit sharing ratio.

Partnership business is carried-on by all or any one of them acts for all.

The person who enters into partnership is called partners and firm is called partnership firm.

Partnership is common in wholesale business, in retail store, in personal service business, and professionals like auditors, doctors, chartered accountants, beauticians, law firm etc.

 

 

Definition

According to Partnership Act, “The person who registers the transaction in Nepal Government giving a single name and to share the profit of a business carried on by all or any of them acting for all is partnership.”

 

Features of a Partnership Firm

The main features of partnership are given below:

Numbers of partner

The number of partners must be in minimum two persons and maximum twenty.

But in banking sector, there must be ten persons but not the same family.

 

Contract

For legal purpose, legal documents are needed.

But the partnership agreement may be written or oral.

 

Registration

The registration of the partnership firm is compulsory in Nepal but it is not compulsory in most of other countries.

When partnership firm is registered, it can take various advantages.

 

Profit sharing ratio

There are three methods for sharing profit or loss in partnership firm.

They are in profit ratio, capital ratio and equal. 

 

 

Keep in Mind (KIM)

Lack of information, profit is shared in equal by the partners.

For partnership business minimum two persons are needed; maximum partners are twenty.

But in banking sector,  maximum partners are ten only.

 

Unlimited liabilities

The liabilities of the partners are unlimited.

If partnership firm bears more losses, the partners have to bring cash from their personal property.

 

Transfer of share

In partnership firm, the share of partner cannot be transferred to anybody without permission of other partners.

 

Partnership Deeds or Agreement

The document, which contains the terms of partnership as agreed by the partners is called partnership deed. It contains:

a.     Name of the firm,

b.    Name and address of all the partners,

c.     Nature and place of the business,

d.    Duration of the partnership,

e.     Amount of capital to be contributed by the partners,

f.       Profit and loss sharing ratio,

g.     Interest on capital, drawing and loan of the partners,

h.    Salaries and commission etc payable to a partner,

i.       Appointment of an auditor,

j.       Rules regarding admission, retirement and death of a partner,

k.     Settlement of accounts on dissolution (wind up) of the firm etc.

 

 

Advantages or Merits of Partnership Firm

The main advantages of partnership firm are as follows:

Easy to establish

A partnership firm can be established easily.

Partnership business can be easily organized through mutual contract among partners.

But, there is a compulsory legal provision of registration for a partnership firm in Nepal.

Collection of larger capital

It is natural that the capital collected from two or more persons becomes larger than a single person.

In comparison to a sole-trading concern, a partnership firm can utilize business opportunities by collecting more capital.

 

Combined abilities and skills

Different partners have different quality.

When business is conducted by two or more persons, combined skills, ability, knowledge, experiences etc of different partners can be used.

In this way, partnership firm gets good opportunity to progress.

 

Division of risk

In a sole-trading concern, only the owner has to bear all risks of business.

But in partnership business, all the partners jointly bear risks.

Therefore, partnership becomes suitable in more risky business.

 

Easy for dissolution

The partnership firm can be dissolved legally, mutual agreement of the partners or in accordance with a contract by the partners.

There are no formal documents required as in Joint Stock Company.

 

Disadvantages or Demerits of Partnership

The main disadvantages of partnership firm are as follows:

Limited resources

Although more capital can be collected in a partnership business, it is impossible to collect a large amount of capital as needed for conducting a modern business.

 

Limited life of firm

The duration of the partnership is always uncertain.

There are every possibilities of the dissolution of the firm due to internal differences.

 

Unlimited liability

It is a major disadvantage of partnership business.

The partners have to bear unlimited liability.

In case of loss in the business firm, the partners have to pay off the liability by using their personal property.

 

Mutual conflict

Misunderstanding and differences in thought, idea, concept, nature, desire, etc of the partners can bring conflict among them.

As a result, it becomes difficult to build proper co-ordination in mutual interest. It will harm partnership business.

 

Delay in decision making

All the partners are necessary for taking decision in partnership firm.

This is a time consuming process.

In some cases if decision is not taken at opportune time, the firm has to suffer losses.

 

Thank you for investing your time.

Please comment on article.

You can help me by sharing this article at your social media platform.

 

Jay Google, Jay YouTube, Jay Social Media

जय गूगल, जय युट्युब, जय सोशल मीडिया