This article tries to show you what partnership is, its features, types sources of funds and the benefits of partnership.
Definition of Partnership
Partnership is an association of two to twenty persons carrying on a business in common with the view of making profit. The partners contribute both funds and efforts to set up and manage the business sharing profit (or loss) on an agreed basis.
Partnership can also be defined as the relationship that exist when two more persons who contribute small money or money’s worth in order to establish, own and manage business organization with the sole aim of making profit. Partnership is an association of 2-20 persons or 2-10 persons as in case of a bank to carry on as co-owners of business for profit. They also share the losses that arise from such businesses.
Features of Partnership
1.) Ownership: It is formed by 2-10 people and between 2-10 people in case of banks.
2.) Liability: Their liability is unlimited except for limited partner.
3.) Formation motives: They are formed for profit reasons.
4.) Sources of capital: contribution from the partners ploughing back profit, loans from banks.
5.) The initial capital is contributed by partners.
6.) Method of withdrawing capital must be approved by other partners as laid down in their partnership deed.
7.) It has no separate legal entity.
8.) It has no board of directors.
Types of Partnership
We have principally two types of partnership namely; ordinary and limited partnership.
1.) Ordinary Partnership: All members or partner take active part in the management the business and are generally liable to any loss or risk. All partners have equal responsibility and bear all the risks of the business equally. All the partners have equal powers, unlimited liabilities, take active part and profits are shared equally.
2.) Limited Partnership: Any members in this category, his debts are restricted to the amount of money contributed in running the business. Not all partners take equal part in the management of their business. But there must be a member who bears the risk and also takes active part in the business activities. In other words, in limited partnership, there is at least one ordinary partner who has unlimited liability.
Kinds of Partners
We have five types of partners and they include:
1.) Active Partner: This is the partner(s) who take active part in the formation, financing and management of the business. They receive salary for the role they play as a manager, managing director or director of the business as spelt out in the partnership deed
2.) Dormant/Sleeping Partner: This partner contributes only the money needed for formation of the business or for running of the business. He is not involved in managing of the busines and doesn’t receive salary. He is only entitled to profit sharing and losses as it is agreed upon before formation.
3.) Normal/Passive Partner: A normal partner is one who is not actually a partner but who allows his name to be used in the partnership or who gives the public the impression that he is a partner even though he may not share in the profit of the business. This is a partner appointed because of his experience, fame or wealthy position. These members may be men and women of substance whose names are greater than silver and gold like retired army generals, politicians, civil servants, successful business men.
4.) Silent Partners: A silent partner is an individual who is known to the public as a partner but who do not take active part in the management of the firm.
5.) Secret Partner: A secret partner is that person who is active in the affairs of the business but not known to the public as a partner.
Sources of Funds for Partnership
The following method could be used by partner to fund their business.
i.) Contribution from members
ii.) Ploughing back profits
iii.) Borrowing from the bank
iv.) Enjoying credit facilities.
Advantages of Partnership
The following are Advantages of partnership:
1.) Greater Financial Resources: Unlike a one-man, business between two and twenty persons forms the partnership. it translates into more capital for such business compared to the one-man business. By so doing ability to borrow i.e from bank and be approved is higher and better compare to one-man. Benefits of expansion are tag because more funds are available.
2.) Combined Abilities and Skills: In partnership, there are various partners, with various ideas, i.e. accountants, marketers, bankers, historians, managers etc. may come to together to form a business. They will put into use various talent which may advance the company more compare to a one-man business, who is the only talent.
3.) Greater Continuity: Relative to the sole proprietorship, the partnership has a very gr tendency of continuity even in death. The death of a partner may bring about a organization of the partnership, but the remaining members are likely to have some knowledge that will enable them to continue with the business.
4.) Ease of Formation: Like-one-man business, the partnership is fairly easy to organizes there are few governmental regulations, governing the formation of partnerships The investments duties, privileges, liabilities and other relationships of the partners are mutually agreed upon, and as soon as the new members and materials have been brought together, the business is ready to function.
5.) Joint and Better Decision: That two good heads are better than one and this is applicable to partnership business where joint and better decisions are taken.
6.) Creation of Employment Opportunities: The large size partnership is in a vantage. position to employ more in their business because of its huge financial resources.
7.) Employment of Treasured Employees: In a bid to secure the experience and advice of estimable employees, they are made partners in the firm. This is a way of enhancing their personal work as well as that of the firm.