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Partnerships

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.


     


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