Partnership as a form of private enterprise business

  

Date Posted: 4/11/2012 8:05:12 AM

Posted By: sashoo  Membership Level: Silver  Total Points: 382

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PARTNERSHIP
In business, partnership is a contract between two or more people. This people usually agree to carry on business with the intention of making profits. It can be temporary or permanent. A temporary partnership exists for a specified period of time - its expiry period is known at the period it is formed. A permanent partnership’s expiry period is not known at the time of its formation.

CHARACTERISTICS OF PARTNERSHIP
1. Formation:
It is formed under the partnership act of 1934 as a business concern.

2. Membership:
It consists of a minimum of 2 members or partners and a maximum of 20. This applies to non-professional partnership. For professional partnership, the maximum number of members or partners is 50 - the partners must be professionals.

3. Liability:
Partners in have unlimited liabilities to the obligations or debts of the business.

4. Capital:
Each partner is responsible for contributing share capital. The capital is generally utilized in the operation of the business.

5. Profits and Losses:
They are shared equally or on an agreed basis by all partners. However, this normally depends on share contributions of each and every partner.

6. Transfer of ownership:
Rights transfer of each partner must have the consent of other partners. Consequently, new partners cannot be accepted without the consent of other partners.

7. Decision Making:
In a partnership, decisions are made on a majority basis i.e. the majority of partners who support a decision will always win, as opposed to the minority.

9. Dissolution of business:

A partnership can be dissolved by:

• Presence of illegal practices.
• Death of a partner or partners.
• Insanity of a partner.
• Bankruptcy of a partner.

10. Each partner plays the role of an agent in the business, with authority to enter into contracts with customers.

PROVISIONS OF A PARTNERSHIP ACT THAT APPLIES IN THE ABSENCE OF A PARTNERSHIP DEED
When applying for registration of a partnership, the prospective

partners can either fill an official form provided by the registrar, which is normally the partnership act or draft of their own agreement. However, this agreement should follow what is stipulated in the partnership act i.e. it should have the same content as the partnership act.

THESE PROVISIONS INCLUDE THE FOLLLOWING:
• Profits and losses must be shared equally.
• Every partner can take part in the management and control of the business.
• The decision of the majority prevails, incase of any dispute.
• Any work or contract can be undertaken or made only with the consent of all partners.
• All the property of one business has to be used by the partners for the purpose of running the business and not for private activities.
• Partners should not engage in any competing businesses with the one they run.
• If a partner contributes more capital or gives the business a loan, such capital will carry an interest of 5% per annum.
• No partner has a right to interest on his or her share capital.
• Change of partners will be made by the agreement of all partners.
• No partner is entitled to salary unless declared by other partners.
• There will be reimbursement if a partner incurs liability on behalf of other partners.
• Partners have the right to inspect books of account of the business.
• On dissolution of partnership, partners will be paid back the following:

a) Share capital contributed.
b) Loans advanced to the business.
c) Any surplus profits generated.

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