Concept and Characteristics of Partnership Firms

Concept of Partnership Firm

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

• 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

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.