Partnership

What is Partnership?

Partnership is another form of business organisation. A partnership is a business that is owned, and managed, by a minimum of two people, and a maximum of twenty (2-20)

However, in the banking setup, the maximum is ten. The partnership law was inherited from the British Law of 1890.

Partnerships are formed by professionals and are usually found in real estate, accounting, and law firms.

Partnership business is not a legal entity and partners share profit and loss.

Types of Partnership:

There are two types of partnership:

1. General Partnership: The liability of the partners is not restricted to the amount of capital contributed due to business failure. 

For example, let’s say that Tunde and Fatima decide to open a baking store. The store is named Tuma Cakes & Creams. By opening a store together, Tunde and Fatima are both general partners in the business, Tuma Cakes & Creams.

It is important to note that each general partner must be involved in the business. For example, Fatima may take care of logistics and purchasing orders, while Tunde oversees the store operations.

The income generated by the business is shared equally between Tunde and Fatima. At the same time, Tunde and Fatima are equally responsible for any losses incurred by the store.

2. Limited Partnership: The liability of every partner is restricted to the amount of money that is contributed, in the case of bankruptcy or indebtedness. Limited partners are not involved in the active management of the business, and cannot lose more than the money that they have contributed, to the partnership.

Forms of Partnership:

There are three forms of partnership:

1. Active Partner: He contributes money, and takes an active part in the smooth running of the business.

2. Dormant (Inactive /Sleeping) Partner: This partner contributes the agreed capital but does not take an active part, in the daily affairs of the business.

3. Nominal (Quasi) Partner: This is a prominent member of the societyThe term society is derived from the Latin word 'socius' meaning friendship or companionship. Society is a community, nation or group of people who share the same traditions, institutions, rules and other common standards of living., who allows his name to be used for the partnership business. He does not contribute capital as an active/dormant partner.  Examples are prominent politicians, public servants, retired/serving military officers, etc.

Advantages of Partnership:

• It is easy to establish.

• A partner’s exit or death may not affect the business.

• There is a diversity of talents among partners.

• Profits are shared by the partners.

• They enjoy privacy.

• It allows for the creation of more jobs.

• The risk and loss are shared by the partners.

• It allows for better decision-making.

• It allows for specialization.

• It has a close relationship with customers.

• Good decisions are made by more than one person.

Disadvantages of Partnership:

• Capital is limited.

• Expansion may be limited because of inadequate funds.

• It is not a legal entity.

• Disagreements may lead to the end of the business.

• The introduction of a new partner may cause the collapse of the business, if not appropriately managed.

• Decision-making is slow, slower than in sole proprietorship.

• The withdrawal of a partner’s assets may lead to the dissolution of the company.