A partnership is business is an agreement between two or more than partners to do a legal business. They agreed to provide all the resources required for business for the purpose of earning profit. Those people who invest money in the partnership are called partner. A partner may be directly involved in the business are called the active partner or a partner only invest in the business is called sleeping partner. Before establishing a partnership business, a partner sits together to discuss the different matter related to business. After discussion, they agree in certain terms and conditions of the business. The agreement between them can be used or written form. The agreement between partners in written form is called partnership deed.
According to L.H Haney, “Partnership is the relation existing between persons competent to make contract, who agree to carry on a lawful business in common with a view to private gain"
According to J.L Hansen, “A partnership is a form of business organization in which two or more persons...join together to undertake some form of business activity."
In conclusion,the partnership is a form of the business organization established by two competent people to make legal business. A partnership form in Nepal is guided and regulated by Nepal partnership act 2020.
A partnership form can be started by making the agreement between partners and registration concern department of Nepal Government. This business does not require complex legal procedures for an establishment.
In comparison to sole trading concern, a partnership can generate sufficient capital for business. Different partners have different sources of money.Because of this, partnership can generate too large sum of money for its establishment of growth and its expansion.
In partnership business, the partners are directly or indirectly involve in business activity. That partner who directly involve in business will get salary as well as share in profit. Therefore, a hardworking partner will get the incentive in the form of profit share.
The works and responsibilities of partnership forms are divided among the partners. Different partners are allocated different work responsibility. This helps to bring effectiveness in the management of the business of an organization.
As partnership firm is established by two or more than two people i.e. the size of the partnership is comparatively large. The goodwill and reputation are also high because of this, a partnership firm has the large source of the loan. It can generate sufficient money for expansion and growth.
Partnership business are more flexible than sole trading concern because the business can be easily financed by growths and expansion. On the other hand, partners may go out are come into business but the partnership business is not affected.
In the partnership, there is no legal obligation to partners to publish its finance information. If the partners intend to keep information secret, it is possible to maintain information secret.
As the partners are directly involved in business activity, they are readily available for decision making. Because of this partnership, a form has higher chances of getting the prompt decision. This could be much more beneficial for the emergency situation.
The concept of minority and majority is not allowed in partnership. All the partners have equal rights to participate in decision-making and involve in business activity. The concept of share is applied only in profit distribution.
A partnership business can be dissolved after making the agreement between partners regarding the dissolution of a business. The dissolution of partners does not require any complex legal procedure
As the partnership business is established and managed by few partners, it has less chance of accumulating a large amount of capital. In comparison to the joint stock, company partnership has less capital.
The liability of partnership form is not limited to the property of a business. It means the partners are required to sell their personal property in case of more debt over the property of a business.
The share of the partnership is only transferable after the agreement of own partners. A partner wishing to sell the share of a partnership must get consequences before selling it. Therefore, it has difficulty in share.
A partnership business may face dissolution in case of death insolvency or mental or physical illness of active partners. The partnership of business could be shut down by the partner after making the agreement between them. Therefore, it has uncertain existence.
Since the partnership business has limited sizes non-existence in the eye of the law, it has less public faith. Public Pont believes to partnership business as much as the joint stock company because of this it has difficulty in both expansion and growth.
Even though partnership business form is firm by the agreement of partners the partners may not agree all the time. The partners may disagree (dispute) regarding dispute of profit/use of authority. This dispute between partners may create problem in existence of business
The partners are required to build consequences before making any decision in the partnership business. For this, all the partners must be together to discuss the matter of business. It takes a long time and brings delay in decision making.
In partnership business, active partners authorized to make a decision on behalf of business other partners. There is no certainty that active partners will make a decision for the betterment of the business. There is a risk that active partners may take a decision on personal benefits. Therefore, a partnership has the risk of implied authority.
(Karna, Khanal, and Chaulagain)(Khanal, Khatiwada, and Thapa)(Jha, Bhusal, and Bista)
Jha, P.K., et al. Economics II. Kalimati, Kathmandu: Dreamland Publication, 2011.
Karna, Dr.Surendra Labh, Bhawani Prasad Khanal and Neelam Prasad Chaulagain. Economics. Kathmandu: Jupiter Publisher and Distributors Pvt. Ltd, 2070.
Khanal, Dr. Rajesh Keshar, et al. Economics II. Kathmandu: Januka Publication Pvt. Ltd., 2013.
Advantages of partnership