Partnership II SS1 Commerce Lesson Note

TYPES OF PARTNERSHIP

There are two main types of partnership business namely:

1. Ordinary Partnership (or General partnership)
2. The Limited Partnership

1. THE ORDINARY PARTNERSHIP (GENERAL PARTNERSHIP)

Characteristics Or Features:

1. Membership/Number of partners: May consist of between 2 to 20 persons. However by the Companies Act 1967 this restriction of not more than 20 persons no longer applies to solicitors accountants, jobbers and brokers
2. Formation: No special formality such as registration is required to form an ordinary partnership
3. Capital/Finance: Obtained through money contributed by partners. Some partners may contribute more money than others
4. Liability of partners: partners have unlimited liability
5. Profits are shared or distributed according to agreement in the deed
6. Powers of Partners: Every member of an ordinary partnership is the agent of the other partners to carry on the partnership business. All partners are bound by the actions of one of the partners acting within the scope of that business
7. Management/control: All partners participate in the management of the business
8. Legal status: It is not a separate legal entity
9. Existence/Dissolution: An ordinary partnership is automatically dissolved by the death, bankruptcy or insanity of a partner.

TYPES OF ORDINARY PARTNERS

1. Active partner: This is a partner who takes an active part in the management and administration of a partnership business. He shares the profit and losses with other partner
2. Sleeping or Dormant Partner: A dormant partner contributes capital and shares from the profit or losses but takes no part in the management (i.e. day to day running) of the firm or business
3.  Nominal or Quasi Partner: The nominal partner is the one who merely allows his name to be used as a partner in the business. He does not contribute any capital to the business nor take part in the management of the firm. He also does not share in the profits or losses of the business. He is usually a prominent person whose name is just added to the list of partners to enhance the goodwill and the image of the partnership business concerned.

2. THE LIMITED PARTNERSHIP

Characteristics Or Features:

1. Membership/Number of partners same as for an ordinary partnership.
2. Formation: A limited partnership must be registered with the Corporate Affairs Commission, otherwise every limited partner will be liable as a general partner.
3. Capital/finance: As contributed by partners.
4. Liability of partners: In the event of bankruptcy (or debt), the limited partners lose only the capital contributed, which means their personal belongings will not be affected. In other words, the liability of the limited partners is limited to the amount of capital contributed by them. However, there must be at least one general (or ordinary) partner who will have unlimited liability.

Profits are shared among members both general (or ordinary), and limited partners according to the agreement in the deed.

5. Powers of limited partner: The limited partners cannot bind the firm in any trading contract. NB: On the other hand, any action of the general partners is binding on all the other members.

6. Management / Control: The Limited Partners cannot take part in the management of the business. He can however inspect the firm’s books of account and may offer advice.

7.  Legal status: A limited partnership is not a separate entity.

8.  Existence/dissolution A limited partnership is automatically dissolved by the death, bankruptcy or insanity of a partner.

9. Withdrawal of capital: The limited partner cannot withdraw his capital without the consent of the other partners.

DEMERITS OR LIMITATIONS OF A LIMITED PARTNER

1. He must not take part in the management of the firm
2. He must be registered with the Registrar, Corporate Affairs Commission
3. He has no power to make binding contracts on behalf of the firm.
4. New partners can be admitted without his consent
5. He cannot get back the capital he has invested in the firm without the consent of the other partners

ASSIGNMENT 

Akanni and Bello are sole proprietors. Akanni proposed that their business be merged to form a partnership

1. Explain to Bello how such a partnership would be to their mutual benefit
2. State five reasons why Bello might be reluctant to accept the proposal