Partnership is a business organization between two or more persons with the sole purpose of making profit. The partners join resources together to establish a business entity and both share the profit and loss. If a sole proprietor accepts another person to co-own his business, it has become a partnership. There are variations in the number of partners as set by different countries. In some countries it ranges between 2-20 partners.
CHARACTERISTICS OF PARTNERSHIP
1) Types of Partnership
i) Working Partners: The partners who participate in the daily functioning of the business are called the working partners.
ii) Sleeping Partners: A sleeping partner is one who only invests capital but do not participate in the running of the business. Such partner is a sleeping partner.
iii) Partners with Capital: Partners with capital are those who invest capital in the business but may not participate in it workings.
iv) Partner without Capital: Some partners are member of a partnership due to a particular skill or business ability they possess. They do not contribute capital but their skill and share from the profit.
2) Unlimited Liability: Every partner has an unlimited liability. They are responsible for every liability.
3) Partnership Deed: The business is formed on the basis of ‘Partnership Deed’ or ‘Article of Partnership’.
The deeds of partnership give some details about the business such as
i) Name of the business.
ii) Nature of business to be undertaken.
iii) Amount of capital or resources to be contributed by each partner.
iv) How profit and losses are to be shared among the partners.
v) How the partnership may be brought to an end, if need be.
vi) How responsibility for the management of the business is to be shared or delegated.
vii) Method for admitting new partners.
4) Limit of Partnership: Government can determine the maximum number of partners in a business for a country.
The number of partners cannot exceed certain number, in Nigeria the maximum number for partners that can establish a bank is 10 and in other business it is 20.
5) Nontransferable Shares: Shares cannot be transferred or sold to other person. It can only be sold if other partners agree to it.
MERITS OF PARTNERSHIP
1) More Capital: When all partners contribute capital towards the business, more capital is realized.
2) Careful Decision: All partners have to put heads together under partnership when it comes to business decision. As a result better decisions will be reached.
3) Division of Labour and Work: The partnership business can engage in division of labour and work for increased output and better supervision.
4) Large Scale Production: Due to availability of more capital and division of labour. The business will reap the advantages of large scale production.
5) Easy Credit: The business can access loan more easily because the burden of repayment will be shared by all partners.
6) Close Contact with both Employees and Customers: The proprietor of partnership business has close relationship with both customers and employees. This enables them understand customer’s needs and grievances of employees. Close contact enables them respond appropriately.
7) Personal Interest: The partners take personal interest in the running of the business because they have unlimited liability.
DEMERITS OF PARTNERSHIP
1) Lack of Mutual Confidence: The business can only survive when all partners trust one another. It will be difficult to run a partnership when mutual confidence is lacking.
2) Personal Disputes: This hampers the smooth running of partnership business when disputes arise.
3) Delay in Decision: It will be difficult for all partners to agree on any issue, as a result there is delay in taking decisions.
4) Difficult to Separate: No partner can at will sell his shares to others. Any partner willing to opt-out must do so with the consent of others.
5) Unlimited Liability: Unlimited liability hampers the partners in taking business risk.
6) Lack of Responsibility: All partners are equally responsible in the business. The notion of every man’s responsibility is no man’s responsibility limits partnership success.
7) Future Uncertainty: The future of the business is uncertain. This is so because the death of one partner may result in the closure of the business.