Note on Concept and Characteristics of Partnership Firms

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Concept of Partnership Firm

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A partnership business is an agreement between two or more than two 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 called the active partner or a partner only investing in the business 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 term and condition of the business. The agreement between them can be draft in 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 a 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.

Characteristics of partnership

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  • Formation

A partnership form can be established by minimum two people by jointly investing capital. A partnership form can start its business by registering in concern department of Nepal government. According to partnership act 2020, to form a partnership business minimum two men are required and the maximum is not defined.

  • Mutual Agreement

A partnership form is established after making the mutual agreement between the partners. The agreement can be in written or oral as well as in both forms. The agreement between partners in written form is called partnership deed.

  • Transfer of shares

The shares of partnership form cannot be transferred from one name to another name without consent (agreement of other partners). All the partners of the business must agree to transfer the share of one to another. Therefore, transfer of the share in partnership is difficult.

  • Sharing of profit/Loss

The profit or loss of partnership business is shared among the partners on the basis of the ratio of their investment. All the partners in business are able to bear the loss of business as well as has a right to claim over a profit of a business.

  • Unlimited liability

The partnership business has unlimited liability. It means all the partner are required to pay a debt of business by selling their personal property as well. In this business, liability is not limited to the property of the business.

  • No Separate legal entity

Partnership Firm does not have its separate legal existence. In partnership forms, its partners are taken as one share. Partnership form cannot make agreement contract or perform business in its name independently.

  • Management

The management of partnership form may be handled by all the partners. The work and responsibility of this business are to share among the partners equally. All the partners will give the experience and skills.

  • Mutual Agency

In partnership business, partners can play the role of both agents principle. Active partners work in a business for benefits of all other partners. At this time, he/she is playing the role of the agency. On the other hand, when partner represents outside, they are playing as principal.

  • Utmost good faith

In partnership business, there is utmost good faith among partners. Active partner work for the betterment of the organization and other partners invest money in the good faith of partners.

  • Individually of partners

Partners in partnership form have their own personal identity and respect in their society. Their identity will not be affected while being outside the business. Partners have to provide all their skills in social responsibility for the betterment of the organization.

Differences between Sole trading concern and Partnership Firm

Basis of difference

Sole trading concern

Partnership firm

No.of members

A sole trading concern is established and managed by a single person.

A partnership firm is established and managed by two or more person.

Investment

A single person invests capital for the operation of the business.

Two or more partners invest capital for the operation of the business.

Agreement

Due to only one sole trader, sole trading concern doesn't need any agreement.

An agreement among the partners is compulsory for the operation of the business.

Decision Making

Decision of business is taken quickly by a single person. There is a high chance of making a wrong decision.

Decision making is delayed but decisions become matured and rational.

Secrecy

The sole trader can maintain the full secrecy of the business matter.

Tight business secrecy cannot be maintained. Chances of leaking business secrecy are comparatively higher in partnership.

Management

The business is managed and control by a single person.

The business is managed and controlled by two or more than two persons.

Risk Bearing

The sole trader himself bears all risk and responsibilities of the business.

All partners share the risk and responsibility.

Registration

The sole trading concern should be registered under the Private Firm Registration Act 2014.

The partnership should be registered under the Partnership Act, 2020.

References:

Khanal, Soma Raj, Surendra Thapa Aslami and Sitaram Dhakal. Business Studies. Kathmandu: Taleju Prakashan, 2067.

Pant, Prem R., et al. Business Studies. Kathmandu: Buddha Academic Publishers and Distributors Pvt. Ltd., 2010.

  1. A partnership is business is an agreement between two or more than partners to do a legal business.
  2. The partnership is a form of the business organization established by two competent people to make legal business.
  3. A partner may be directly involved in the business are called the active partner.
  4.  A partner only invests in the business is called sleeping partner.

Characteristics of partnership

  1. Formation
  2. Mutual agreement
  3. Transfer of shares
  4. Sharing of profit or loss
  5. Unlimited liability
  6. No separate legal entity
  7. Management
  8. Mutual agency
  9. Utmost good faith
  10. Individuality of partners
.

Very Short Questions

The differences between a sole trading concern and a sole trading concern are given below:


Basis of difference

Sole trading concern

Partnership firm

No.of members

A sole trading concern is established and managed by a single person.

A partnership firm is established and managed by two or more person.

Investment

A single person invests capital for the operation of the business.

Two or more partners invest capital for the operation of the business.

Agreement

Due to only one sole trader, sole trading concern doesn't need any agreement.

An agreement among the partners is compulsory for the operation of the business.

Decision Making

Decision of business is taken quickly by a single person. There is a high chance of making a wrong decision.

Decisions of a partnership are taken by all partners through their mutual consent. Decision making is delayed but decisions become matured and rational.

Secrecy

The sole trader can maintain the full secrecy of the business matter.

Tight business secrecy cannot be maintained. Chances of leaking business secrecy are comparatively higher in partnership.

Management

The business is managed and control by a single person.

The business is managed and controlled by two or more than two persons.

Risk Bearing

The sole trader himself bears all risk and responsibilities of the business.

All partners share the risk and responsibility.

Registration The sole trading concern should be registered under the Private Firm Registration Act 2014. The partnership should be registered under the Partnership Act, 2020.

 

 

 

 

 

 

Patnership is a form of business which as evolves a form of organization in which overcome the shortcomings of sole probetween prietor. It is an agreement between two or more than two persons for carrying on a lawful business for earning profit. Hemce, partnership is an extension of sole trading concern. An individual who make an agreemennt or invest money callled patners. 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. 

According to L.H Haney, “partnership is the relation existing between persons competent to make a 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."

From the above definition, it is clear that, A partnership is a form organisation in which two or more persons make an agreement to make legal business.

Characteristics of Partnership organization are

  • Formation
  • Mutual agreement
  • Transfer of shares
  • Sharing of profit or loss
  • Unlimited liability
  • No separate legal entity
  • Management
  • Mutual agency
  • Utmost good faith
  • Individuality of partners

0%
  • In Nepal,Partnership firm is registered under the patnership Act_______.

    2018 B.S(1961 A.D)
    2020 B.S(1963 A.D)
    2015 B.S(1958 A.D)
    2012 B.S(1952 A.D)
  • __________ is the agreement between two or more persons to carry the business for their mutual beliefs.

    Joint Stock Company
    Sole trading concern
    Public Enterprises
    Partnership firm
  • According to_______"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".

    A.N Agrawal
    A.N Agrawal
    R.N ownes
    L.H Haney
  • According to________"partnership firm is a group of men who have joined capital or services for prosecution of some enterprise"

    Kimball and kimball
    A.N Agrawal
    L.H Haney
    Keith Davis
  • According to________"A partnership is a form of business organization in which two or more persons join together to undertake some form of business activity"

    J.L Hansen
    A.N Agrawal
    R.N ownes
    Keith Davis
  • __________are the dissolution of partnership firm in Nepal.

    Dissolution by agreement
    Dissolution by written notice
    Dissolution at any time
    All
  • Which one is a dissolution of partnership firm in Nepal ?

    Dissolution by agreement
    Dissolution by liability
    Dissolution by capital
    None
  • _____are the dissolution by the concerned Department.

    If the firm violates the rules or conducts unlawful business.
    If the firm is not renewed
    All
    If a partner applies to the concerned department for dissolution with sufficient and reasonable
  • _________are the partneship firm that can be dissolved at any time .

    Fraud
    Non-payment dues
    All
    Inability
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