Question 1

Concept of partnership
Partnership is a business that owned by two or more persons but not exceeding 20 persons.
In the purpose of earning the profit, the partners will agree to provide resources that required for
their business. The people who are lending their money in business are called as ‘partners’. They
are two types of partners. First is, active partner. Active partner means a partner who directly
involved in their business. Secondly, sleeping partner. At where, the partner who invests the
capital only. It exits when two or more persons pool their skills, labor, capital and other
resources together to form a business jointly. Before establishing a partnership, the partners will
discuss the certain term and will draft the agreement in written form. According to J.L Hansen,
“a partnership is a form of business organization which established by two or more competent
people to undertake some type of business activity”.

In partnership, the members will conduct their business with the partners to form an
association comprehensively at where they can participate in order to share the profits.
Moreover, the identity card name can’t be used as business name. The law governing such an
association are to be found in the Partnership Act 1962 (Revised 1974), which is similar to the
English Partnership Act 1890. S3(1) of Partnership Act states that relation which subsists
between persons carrying on a business in common with a view of profit. Thus, for a partnership
to exist, relationship which subsists between two or more persons. There should be more than
one person to form a partnership. Minimum two and maximum 20 partners cannot exceed 20,
because this contravenes S14(3)(b) of the Companies Act 1965, unless the partnership is one of
professionals. For instance, doctors, lawyers, engineers or accountants. In partnership, the
persons must agree to carry a similar business.

Furthermore, in the view of profit, the partners must also agree to carry the business for the
purpose of profit. The members do not form a partnership, if they are willing to raise the funds or
runs a charitable organization together. The associations such as sports clubs and charitable
organisations are not partnership, as they do not conduct their business with the view of profit.

There are four type of partners. Such as active partners, dormant or sleeping partners,
salaried partners by holding out/ Quasi-partner. Firstly, the active partners are known as partner
who actively and openly engages in the business. He is also sometimes known as a general
partner. Secondly, sleeping or dominant partner known as a partner who though possibly known
to outsiders as a partner, takes no active part in the management of the business but, he still liable
as a partner. In return for investing in the partnership capital, this partner has a right only to share
in the profits in the proportion agreed upon. Moreover, the salaried partner known as a partner
who is held out to be a partner and is being paid a salary. He may be only an employee, or he
may be also known as a partner. Lastly, partner by Holding Out or Quasi-Partner is also known
as a partner who holds himself out or caused people to believed he is a partner. In fact, he is not a
partner, but in certain circumstances, he may be held liable as a partner. He may be liable for
debts of the partnerships as a result of his ‘holding out’.

Besides, Part V dealt with dissolution 1 of partnership from the S.34 until S.37. A partnership
may be dissolved in the following ways. Firstly, dissolution by agreement. The partnership
agreement may fix the duration of partnership. The partnership is dissolved on the expiry of that
period. The partners may actually agree to dissolve the partnership at any time. The second the
dissolution is by operation of law (S.34). For expiration, if the partnership is entered into for a
fixed term or for a single adventure or undertaking-the partnership is entered into for a fixed term
or for a single adventure or undertaking-the partnership is dissolved on the expiration of the
fixed term or termination of the adventure or undertaking. For notice, if the partnership is entered
into for an underline time (partnership at will) the partnership may be dissolved at any time by
giving notice to the other partners. Thirdly, dissolution by death or bankruptcy which is referred
to S.35(1). A partnership is dissolved by the death or bankruptcy of any partner.

The next dissolution is by charging on shares which was referred to S.35(2). If a partner
suffers his share of the partnership property to be charged with payment of his personal debt and
the other partners have the option to dissolve the partnership. The fifth dissolution is by
supervening illegality (S.36). A partnership is dissolved by the happening of any event which
makes it unlawful for the business of the firm to be carried on or for the members of the firm to
carry on in partnership. The last dissolution is by court order (S.37). A partnership may be
dissolved by a court order on application by a partner. A court may order dissolution in any of
the following cases. They are when a partner become lunatic or of unsound mind, when a partner
becomes permanently incapable of performing his duties, when the business of the partnership

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Online notes, Topic 1, Dissolution of partnership
can only be carried on at a loss, when a partner conduct id calculated to prejudicially affect the
carrying on of the business, when a partner willfully and persistenly breach the partnership
agreement and when in the opinion of the court, it is just and equitable that the partnership be
dissolved.

Advantages and disadvantages of partnership

In partnership, the business owners will share their profits, making decision in their business
and liable for his business’s liabilities. The partners might have different skills or talents in their
business. Thus, they can work well to gain their profit in large amount. However, there can
obviously present some problems if the partners end up falling out badly on their personal or
business level problems. There are many advantages and disadvantages in partnership.

Advantage of partnership

First advantage of partnership is sharing the responsibility. The partners in a business can
share their risk or responsibilities in conducting their business. This helping them to make more
abilities in their business. Moreover, the partners may split the work according to their skills or
talents, and taking equal shares of their business. If one of the partner is talent in dealing with the
business’s accounts, the other partner might have flare for sale. Thus, they can maintain the sales
of their business. Moreover, the partners can increase their profits or income.

Secondly, the advantage of partnership is flexibility. The partnership is an easier

organization to form and manage to run a business. In terms of law, in partnership, the partners
are less strictly regulated their business. Thus, the members in the partnership can manage the
business easily by making the decisions quickly without any problems.

The third advantage of partnership is acquisition of capital 2. In partnership, the partners can
use their capital to purchase the assets such as equipment, software or for their business itself.
For example, the members in partnership who applied for loans, can instantly get loans on better

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disadvantages-of-partnership/8930
terms because the partners will assurance the loans with their personal belongings. Moreover, the
banks will offer the loan to the members in partnership by recognizing the partners.

Next advantage of partnership is decision making. The partners will share each and every
decision that they made in their business. They might can help each other out to run their
business well. If they had more partners, they may have more ideas to solve their business’s
problems that they have to face. The fifth disadvantage of partnership is easy formation. The
partnership form of organization can be formed without legal formalities. There are no formal
documents are required in the case of joint legal stock companies. An agreement which may
conduct by oral or written is sufficient to enter into partnership to form an organization.

The last advantage of partnership is protection of minority interests 3. The minority interest is
effectively protected by law. In partnership, all important decisions are taken with the consent of
all partners. In policy matters, all partners must agree, and even in ordinary affairs of routine a
dissatisfied partner may withdraw and dissolve the firm. The law gives right to each partner to be
consulted and heard. This gives equal rights to the partners.

Disadvantages of partnership

The first disadvantage of partnership is disagreements between partners. In partnership, the

members might have different ideas on dealing the business. This can disputes lack of
agreements among the partners. This is why the partners are always advisable to do a draft to
ensure that everyone is aware of what procedures.

Secondly, the disadvantage of partnership is burden of implied authority. In partnership, each

partner in a business is an agent to bind others and omission in ordinary. When there is one
partner who is lazy, negligent, his partners are equally liable financially and without limit. This
may affect the financial position of the business and may lead to the closure of the firm.

Thirdly, the disadvantage of partnership is liability. In ordinary partnerships, the partners are
fully liable to share their liability and financial exposure which leads to the danger of their
business. This process was classified by the formation of a limited liability partnership.

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Online notes, Topic 1, Advantages of partnership
 In addition, the next disadvantage of partnership is taxation 4. In partnership, the partners
must pay tax as sole traders. The company should pay the tax on its taxable profits. The partners

are also required to register themselves as self employed. Besides, the disadvantage of
partnership is limited resources in the business. To form a business organization, the limit of
members of partnership is less than twenty. In order to maintain the harmony and peace among
the partners, the number of members should be smaller than allowed by the law. The further
limits the resources with the result that the large scale business cannot be run by partnership.

In conclusion, these are the advantages and disadvantages of partnership at where it gives
benefits and literally affects the profits or income in business. Thus, the partners should choose
their business partners who are more talented to maintain their sales level. In partnership, every
member must play their role well to avoid some problem with their partners.

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References

1.https://www.business.tas.gov.au/starting-a-business/choosing-a-business-strucure-intro/
partnership-advantages-and-disadvantages

2. https://www.americanexpress.com/en-us/business/trends/-and-insights/articles/what-are-the-
advantages-and-disadvantages-of-a-partnership/

3. https://www.businessmanagementideas.com/organisation/types/partnership/advantages-and-
disadvantages-of-partnership/8930