PARTNERSHIP
A partnership is defined as the relationship that exists between two or more (but more than twenty) persons carrying on a business in common for the purpose of making profits.
A partnership is the relationship that exist when two or more persons contribute skill, moneys’ worth in order to establish, own and manage business organization with the sole aim of making profit.
CONDITIONS SUITABLE FOR THE FORMATION OF PARTNERSHIP
- Partnership is suitable for executing short term venture
- Partnership is suitable where the ownership and control should not be extended outside the family or friends
- Partnership is suitable where the success of the business requires the skill or knowledge of experience members of the partnership e.g. solicitors
- Partnership is suitable where large amount of capital is not necessary for a business as in a limited liability company.
- Partnership is suitable where the partners have contractual capacity
FORMATION OF PARTNERSHIP
A partnership may be established without any special formalities. However a written agreement called a partnership deed is usually drawn up.
PARTNERSHIP DEED:
This is written agreement entered into by partners of a partnership business. It is a document which states the agreements, rules and regulations that guide the conduct of a partnership business.
CONTENTS OF THE PARTNERSHIP DEED
- Name of the firm (i.e. name of the partnership business)
- Name of the partners
- Nature of the business of the firm
- The capital of the firm and the amount to be contributed by each of the partners
- How profits and losses are to be shared
- Duration of the partnership
- The circumstances which shall dissolve the partnership
- Procedure for dissolution
- Procedure for admitting new partners
- The methods of settling disputes, if any etc.
PARTNERSHIP AT WILL:
This refers to where no fixed term or period has been agreed upon for the duration of the partnership.
FEATURES OF CHARACTERISTICS OF PARTNERSHIP
- It is owned by two to twenty person (partners)
- The initial capital is contributed by the partners
- Profits and losses are shared by the partners
- Unlimited liability i.e. the liability of the partners is unlimited
- It is not a legal entity: It therefore cannot sue or be sued in its own name
- No special formalities is required in its formation
- Partners are agents of the firm
- The motive of its formation is to make profit
- Partners participate in management of the firm
ADVANTAGES OF PARTNERSHIP
- Increased capital: More capital is made available as more persons have to contribute together
- Joint and better decisions are taken
- Sharing of risks and liabilities among partners
- It is easy to form – no legal formalities required in its formation
- There is specialization in management/application of division of labour
- There is privacy: as the partners are not legally required to publish the annual account for public consumption
- It can withstand competition
- Partners have more room for holidays, sick leave and rests
- Greater scope for expansion than a sole proprietorship
DISADVANTAGES OF PARTNERSHIP
- Unlimited Liability: The partners are liable for the debts of the business even to the extent of their private property
- Inability to raise sufficient capital
- It is not a legal entity
- Action of one partner is binding on other partners and on the firm i.e. partner an agent of the firm
- Disagreement between partners can end the business
- Pride of ownership diminishes
- Lack of continuity: The death or retirement of one partner leads to the dissolution of business
- Profits are shared
- It is show in decision/policy making – as a result of need for consultations among partners
REVIEW QUESTIONS
- Akanni and Bello are sole proprietors. Akanni proposed that their business be merged to form a partnership
- Explain to Bello how such a partnership would be to their mutual benefit
- State five reasons why Bello might be reluctant to accept the proposal
RIGHTS OF PARTNERS
- Rights to share from the profits of the partnership business
- Right to take part in the management of the partnership business
- Right to have access to, inspect and copy the books of account of the business
- Indemnity: Right to be reimbursed for expenses or losses incurred on behalf of the business
- Right to act as the agent of the business
- A partner making advance beyond the amount of capital which he has agreed to subscribe is entitled to interest of 5% per annum from the date of the advance.
SOURCES OF CAPITAL/FINANCE FOR A PARTNERSHIP
- Personal contributions of the partners
- Loans from partners
- Loans and overdrafts from banks
- Trade credits i.e. credit purchase
- Retained profits (ploughed-back profits)
- Other credit facilities e.g. hire purchase, leasing etc.
- Grants/loans from government agencies e.g. NAPEP, NDE
DISSOLUTION OF PARTNERSHIP
- This means bringing the existence of the partnership business to an end. A partnership may be dissolved due to any of the following reasons.
- The expiration of the term or period fixed for the partnership business
- The death of a partner
- The bankruptcy of a partner
- Through the mutual consent of all the partners
- If the partnership business becomes insolvent
- The happening of an event which causes the partnership to become illegal
- The insanity of a partner
- When one partner gives notice to the other of his intention to dissolve the firm
- On the order of the court
- The completion of the venture/project or undertaking, when a single venture was the purpose of the partnership
REVIEW QUESTIONS
- What four conditions are necessary for the dissolution of partnership.
- State five rights of a partner in a partnership business.
TYPES OF PARTNERSHIP
There are two main types of partnership business namely:
a. Ordinary Partnership (or General partnership)
b. The Limited Partnership
THE ORDINARY PARTNERSHIP (GENERAL PARTNERSHIP)
Characteristics or features:
1. Membership/Number of partners: May consist of between 2 to 20 persons. However by the companies Act 1967 this restriction of not more than 20 persons no longer applies to solicitors accountants, jobbers and brokers
2. Formation: No special formality such as registration is required to form an ordinary partnership
3. Capital / finance: Obtained through money contributed by partners. Some partners may contribute more money than others
4. Liability of partners: partners have unlimited liability
5. Profits are shared or distributed according to agreement in the deed
6. Powers of partners: Every member of an ordinary partnership is the agent of the other partners for the purpose of carrying on the partnership business. All partners are bound by the actions of one of the partners acting within the scope of that business
7. Management / control: All partners participate in the management of the business
8. Legal status: It is not a separate legal entity
9. Existence/dissolution: An ordinary partnership is automatically dissolved by the death, bankruptcy or insanity of a partner
TYPES OF ORDINARY PARTNERS
A. Active partner: This is a partner who takes active part in the management and administration of a partnership business. He shares the profit and losses with other partner
B. Sleeping or Dormant Partner: A dormant partner contributes capital and shares from the profit or losses but takes no part in the management (i.e. day to day running) of firm or business
C. Nominal or Quasi Partner: The nominal partner is the one who merely allows his name to be used as a partner in the business. He does not contribute any capital to the business nor take part in the management of the firm. He also does not share in the profits or losses of the business. He is usually a prominent person whose name is just added to the list of partners to enhance the goodwill and the image of the partnership business concerned.
REVIEW QUESTIONS
1. Write Short notes on the following: (a) General partners (b) Sleeping partners
2. List five characteristics of ordinary partnership.
THE LIMITED PARTNERSHIP
Characteristics or features:
1. Membership/Number of partners – same as for ordinary partnership
2. Formation: A limited partnership must be registered with the Corporate Affairs Commission, otherwise every limited partner will be liable as a general partner.
3. Capital / finance: As contributed by partners
4. Liability of partners: In the event of a bankruptcy (or debt), the limited partners lose only the capital contributed, which means their personal belongings will not be affected. In other words, the liability of the limited partners is limited to the amount of capital contributed by them. However, there must be at least one general (or ordinary) partner who will have unlimited liability
5. Profits are shared among members both general (or ordinary), and limited partners according to agreement in the deed.
6. Powers of limited partner: The limited partners cannot bind the firm in any trading contract. NB: On the other hand, however, any action of the general partners are binding on all the other members.
7. Management / Control: The Limited Partners cannot take part in the management of the business. He can however inspect the firm’s books of account and may offer advice.
8. Legal status: A limited partnership is not a separate entity
9. Existence / dissolution – A limited partnership is automatically dissolved by the death, bankruptcy or insanity of a partner
10. Withdrawal of capital: The limited partner cannot withdraw his capital without the consent of the other partners.
DEMERITS OR LIMITATIONS OF A LIMITED PARTNER
1. He must not take part in the management of the firm
2. He must be registered with the Registrar, Corporate Affairs Commission
3. He has no power to make binding contract on behalf of the firm.
4. New partners can be admitted without his consent
5. He cannot get back the capital he has invested in the firm without the consent of the other partners
REVIEW QUESTIONS
1. State FIVE similarities and FIVE differences between ordinary partnership and limited partnership
2. List five limitations of a limited partner in a partnership business.
WEEKEND ASSIGNMENT
1. Which of the following is not needed for the partnership business to be dissolved (a) Termination of venture (b) Mutual consent of the partners (c) Order from the Registrar of Companies (d) Expiration of the partnership deed
2. Which body of people has NOT been granted an exception to have as many partners as necessary by the Company’s Act of 1967 (a) Accountants (b) Bankers (c) brokers (d) Solicitors
3. What is NOT a source of capital for a business (a) Borrowing from somewhere (b) Personal savings (c) Retained profits (d) Collection of Tax
4. The minimum and maximum numbers of people to form a limited partnership is (a) 1 to 50 (b) 1 to 20 (c) 2 to 50 (d) 2 to 20
5. Which of the following firms can have more than 20 partners (a) carpentry (b) tailoring (c) solicitors (d) artists
THEORY
1. Explain the special advantages accruing to a limited partner in a partnership business
2. Write short notes on the following (a) Active partner (b) Quasi partner
READING ASSIGNMENT
1. Essential Commerce for SSS by O.A. Longe Page 68 – 76
2. Comprehensive Commerce for SSS by J.U. Anyaele page 154 – 165
GENERAL EVALUATION QUESTIONS
1. Explain six functions of wholesalers to manufacturers
2. State seven facilities a good seaport should have
3. Identify three advantages and two disadvantages of automatic vending
4. State five reasons why countries restrict foreign trade
5. List and explain five problems associated with international trade
WEEKEND ASSIGNMENT
- A partnership business will not raise capital through (a) contributions (b) credit purchases (c) debentures (d) retained earnings
- In a partnership business, start-up capital is sourced mainly through (a) loans from bank (b) contributions by members (c) public appeal for fund (d) help from friends
- In partnership business, the maximum number of person for its formation is
(a) 5 (b) 10 (c) 2 (d) 25 - Profit in partnership is shared according to (a) amount contributed by each partner (b) agreement in the deed (c) number of hours put in by each partner (d) seniority of partner (e) types of partners
- The partnership agreement contains the (a) duration of the partnership if known (b) goodwill and credibility of the partners (c) relationship among the partners and customers (d) size of the partnership
THEORY
- Give any five reasons why sole traders come together to form partnership
- Give three rights of a partner
READING ASSIGNMENT
Essential commerce for SSS by O.A. Longe Page 68-76
Comprehensive Commerce for SSS by J.U. Anyaele Page 154-165
GENERAL EVALUATION QUESTIONS
- Explain five examples of industrial occupation
- State five uses of capital as a factor of production
- List five features of a partnership business
- State six functions of an entrepreneur
- Explain six functions of Commerce in an economy
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