Partnerships too have received an important place in the economy as a type of
a private sector business organization. The ability of entrepreneurs to engage
in business activities together than individually has been a major reason for the
establishment of partnerships. Similarly partnerships have emerged owing to the
requirements of getting more capital, making right management decisions, getting
the involvement of individuals with different skills, etc. It can be seen that people
who are engaged in the professional fields such as accounting, law, tax and medicine
and the parties who do production and trade organize as partnerships.
A relationship between two or more
individuals with the objective of earning
profits is known as a partnership.
Main characteristics of partnerships
1. Number of partners
In order to start a partnership there should be minimum of two partners and the
maximum number is limited to 20.
2. Existence of an agreed (stipulated) relationship among partners.
A partnership is started according to the agreement arrived by the partners. This
agreement can be written, oral or implied. The agreement among the partners
regarding the partnership is known as the partnership agreement.
3. No continued existence
The continuity of the partnership is obstructed due to the change of the partnership
agreement or the death, insanity or bankruptcy of a partner.
4. Unlimited liability of the partners
Partners are unlimitedly liable for the liabilities of the partnership. Accordingly,
partners may have to sacrifice their private properties to pay off the debt of the
partnership if the assets of the partnership are not sufficient when settling its
liabilities.
5. No separate legal identity
Since a partnership is not considered as a legal person before the law, it cannot
perform legal activities in its business name. Hence, the legal matters of the
partnership should be done not in its business name but using the personal names
of the partners.
6. Not mandatory to register a partnership
It is not mandatory to register a partnership. Yet many advantages can be obtained
by registering a partnership. Here the business name of the partnership will be
registered. Registration can be done under the Business Name Registration
Ordinance.
7. Every partner will be a representative (or an agent) of other partners
Every partner is liable for the affairs done by each partner. Hence, every partner is
considered as a representative of other partners.
Starting a partnership
A partnership can be started in the same
way as a sole proprietorship. Yet, since
there may be a maximum up to 20
partners, it might face different practical
issues when running the business. Though
a partnership agreement can be arrived
at in writing, orally or by implication
(implied), it is more suitable to conduct
the partnership on a written agreement.
This written agreement is known as the partnership deed.
It is important to have the stipulated agreement in writing in order to minimize the
practical issues that may arise in a partnership when doing business.
Some of the factors included in a partnership agreement are given below.
# The method of capital contribution by the partners.
# The way of sharing profits and losses.
# The way how the partners contribute to the affairs of the business.
# Paying salaries to the partners.
# Obligations and rights of partners.
# Information relating to ceasing / dissolving the partnership.
# Arrangement of paying interest to the partners for the loans given to the
business other than the capital.
# Other common agreements regarding the conduct of the partnership.
Advantages of partnerships
# Convenience of commencing.
# Can raise more capital.
# Can take collective decisions.
# Liabilities are shared among the partners.
# Can utilize different skills of the partners.
Limitations of partnerships
# Unlimited liability.
# No separate legal identity.
# Possibility of arising conflicts among partners.
# Profits being shared among partners.
# No continued existence.
# Consequences of a mistake done by a partner can affect other partners.
