Partnership Business

7.0 Opening Case

7.1 Partnership: An Overview
7.2 Meaning and Definition of Partnership
7.3 Formation of a Partnership Firm
7.4 The Partnership Deed of Agreement
7.5 Why contract is the essence of the partnership business?
7.6 Contents of Partnership Deed
7.7 A Specimen of a Partnership Deed
7.8 Features of Partnership Business
7.9 Advantages of Partnership Business
7.10 Disadvantages of Partnership
7.11 Who can be a partner?
7.12 Admission of a new partner
7.13 Retirement of a partner
7.14 Expulsion of a Partner
7.15 Rights and Liabilities of a Minor
7.16 Types of Partners
7.17 Rights of Partners
7.18 Duties of Partners
7.19 Liabilities of a Partner
7.20 Types of Partnership
7.21 Ordinary vs. Limited Partnership
7.22 Registration of Partnership Organization
7.23 Demerits of an Unregistered Firm
7.24 Dissolution of a Partnership Organization
7.25 Partnership Management Strategy
 Chapter
07

Partnership Business

Chapter Outline: Opening Case, Introduction, Meaning and Definition of Partnership, Formation
of a Partnership Firm, The Partnership Deed of Agreement, Why contract is the essence of the
partnership business? Contents of Partnership Deed, A Specimen of a Partnership Deed, Features
of Partnership Business, Advantages of Partnership Business, Disadvantages of Partnership, Who
can be a partner? Admission of a new partner, Retirement of a partner, Expulsion of a partner,
Rights and liabilities of a minor, Types of Partners, Rights of partners, Duties of partners, Liabilities
of a partner, Types of partnership, Ordinary vs. limited partnership, Registration of Partnership
Organization, Demerits of an Unregistered Firm, Dissolution of a Partnership Organization,
Partnership Management Strategy, Exercises.

Learning Goals: After studying this chapter students will be able to know:

 The concept of Partnership, required documents are needed and how does it will be
formed
 What is essence of partnership? Who can be the partner?
 How a partner can be admitted and may get expulsion from the business
 What its distinguished features, merits and demerits of this business
 The Dissolution process of partnership business

7.0 Opening Case

Keith Richards and Mick Jagger. Bill Gates and Steve Ballmer. Warren Buffett and Charlie Munger.
Bill Hewlett and Dave Packard. What do these famous partnerships have in common? They lasted
a long time and in some cases are still going strong. Why is it that some partnerships succeed
while others crash and burn? To find an answer, scholars asked a few experts to give us an inside
look at what has made these partnerships thrive. Among them were Doug Conant, CEO of
Campbell Soup Company, and Denise Morrison, Campbell's executive vice president and chief
operating officer. The two have worked together for several years, most recently side by side as
partners. All of the experts we consulted identified four key elements that define lasting business
partnerships:
Trust: Not surprisingly, trust is the foundation for any successful partnership. But what exactly
does that mean? "Trust implies that both parties participate in the relationship with both 'gives'
and 'gets,' says Morrison, who on August 1, 2011, will take the helm as the first woman CEO in the
142-year history of Campbell Soup Company. "The attitude of giving a full commitment to the
partnership will usually result in getting the same commitment in return," she says. It's that very
commitment that has kept Warren Buffett and his vice chairman of Berkshire Hathaway, Charlie
Munger, working together for more than 30 years. Indeed, while they are known to be exact
opposites in terms of personality, their deep trust in one another has allowed their partnership to
be mutually beneficial despite their differences.

Mutual respect: If you look at these famous examples, you'll notice that each pair has
complementary skill sets that allow the partners to respect each other's unique strengths. Each
partner needs to "acknowledge that no matter who did what or how much, nothing could have
been accomplished without the work and contribution of the other," says Lee H. Igel, Ph.D.,
assistant professor at New York University's School of Continuing and Professional Studies. Keith
Richards, for example, an expert musician, relies on Jagger's skills as a vocalist, lyricist and
businessman. Similarly, though Bill Gates is no longer at Microsoft, his genius at software
development, combined with Steve Ballmer's ability to drive ideas from inception to
implementation, made them a successful pair. "Gates came to appreciate over time that Ballmer
was able to operationalize his thinking abilities as opposed to trying to control everything," says
Myron Beard, who has a Ph.D. in psychology and runs his own executive consulting firm.

Shared vision and values: That being said, it's important that partners aren't too different when it
comes to goals. Hewlett and Packard, both Stanford University electrical engineering graduates,
worked together on a fellowship. When they launched their business in Packard's garage near
Palo Alto, California, in 1939, they shared the same mission and objective: to build an electronics
company. "What cripples famous partnerships to a point of failure is when, after achieving
success, the partners have the interest and opportunity to take on new projects," says Igel. "New
projects can require new missions and objectives that take the partners in different directions,
and so the elements of the relationship that made them successful end up frittering away."

Honest and open communication: Taking on a partner is like taking on a spouse. That means you
need to have honest and open communication -- always, no matter how difficult the topic. This
includes talking about money, mistakes and different management styles. "It's extremely
important that you let people know where you stand -- what motivates you, how you operate,
what your expectations are, et cetera. I make it a practice to meet with everyone on my team very
early on and tell them everything they need to know about me," says Conant, the CEO of
Campbell Soup Company, who has an entire website dedicated to his leadership philosophies. "At
the end of the meeting, I encourage them to tell me what I need to know about them. It makes
for a more productive partnership."

7.1 Partnership: An Overview

Partnership Business is a form of business organization created through voluntary agreements of
minimum two and maximum 20 persons (the maximum is 10 in the case of banking business),
with the intention of making and sharing profits among themselves. It is a legal form of business
operations between two or more individuals who share management and profits. The two most
common forms are general and limited partnerships. This type of business can arise only as a
result of an agreement or contract, expressed or implied, between the partners.

Fig. : Partnership Overview

The registration of partnership firm is optional. But if registered, a partnership firm can enjoy
some legal rights and facilities. A partnership deed includes the name of the firm, nature of
business, the capital and property of the firm, the capital of individual partners, term of
partnership, provision for salaries, and drawings on account of profit, rate of interest (if any) on
partners' capital, advances and drawings, rights and duties of individual partners, provision for
accounts and audit, division of profits and losses (capital and revenue), powers of admission and
expulsion of a partner, termination of agreement by insolvency, death, etc., valuation of goodwill
and share of assets on sale or death, and an arbitration clause. If a partnership business is not
registered, a partner of the firm can't bring any complaint to enforce a right arising from a
contract or conferred by the Partnership Act against the firm or his co-partners.

7.2 Meaning and Definition of Partnership

A legal form of business operation between two or more individuals who share management and
profits. Partnership doesn't always mean two people. There are many large partnerships that
have thousands of partners. A business organization in which two or more individuals manage
and operate the business. Both owners are equally and personally liable for the debts from the
business.

The sole partnership has inherent strengths and weaknesses. It has' serious limitations such as
lack of adequate finance, and managerial capability, particularly when the business expands. The
expansion of business thus, requires more capital and requires more managerial ability. This
made some kind of an association among individual businessmen and resulted in a new form of
organisation called 'Partnership Organisatoin'. Partnership is an agreement between two or more
than two individual to carry on the business for profit. The person who have entered into
partnership with one another are called individually 'partners' and collectively 'a firm' and the
name under which their business is carried on is called the 'firm name'.

Expert opinions:
a) "Partnership is the combination by two or more persons capital or labor or skill for the purpose
of business for common benefits"- Professor Parson.
b) "Partnership is a contract of two or more competent persons to place their money, efforts,
labor and skill, or some or all of them in lawful commerce or business and to divide the profit
and bear the loss in certain proportions"- Professor Kent.

c) "Partnership is the relationship between persons who have agreed to share the profit of a
business carried on by all or any of them acting for all, persons who have entered into
partnership with one another are called individual partner and collectively a firm"-
Partnership Act 1932 (section 4).

From the above discussion we can point out the essential elements of Partnership Business:

 Plurality in case of member

 Contractual relationships among members
 Legal objective of doing business
 Sharing profit and loss
 Mutual trust to each other
 Members must be adult and fit both mentally and physically
 Work as mutual agent.

7.3 Formation of a Partnership Firm

In Bangladesh, a partnership firm is to be formed under the provisions of the Partnership Act
1932. By definition, a partnership is illegal if it consists of more than 20 persons in case of a
general business and more than 10 persons in case of business in banking. A non-profit making
association is not a partnership in law of Bangladesh. In common, institutions or associations
cannot be a member of a partnership. The Partnership Act 1932 does not require a partnership
deed or agreement to be registered.

Principle Legislation: The Partnership Act, 1932;

General Requirements to Start a Partnership Business:

i. The Partnership Deed;

ii. Minutes of Partners' Meeting;
iii. Trade License from City
Corporation/Municipality/Union Council (Local
Government Bodies);
iv. Taxpayer's Identification Number (TIN)
v. VAT Registration (in the cases where applicable)
vi. IRC (in the case of business related to import)
vii. ERC (in the case of business related to export) Fig. : Starting Partnership
viii. License/Permission from the authorities according
to the nature of business/profession
ix. Bank Account
x Membership of Trade Body
As per publication of Board of Investment (BOI), local investor may setup a business under several
organizational structures such as single proprietorship, partnership and limited company. In the
case of a foreign investor, one may establish its business only under limited company.

Limited Partnership Firm: In Bangladesh, Limited Partnership Firm in Bangladesh is not

realistically available. A partnership business form includes two stages for development. These
two steps are discussed below:

a) Preliminary Stage: It is comparatively easy to form a partnership firm. No other legal formality
is required for its formation. Any two or more persons (3) to 20 for General Partnership and 2
to 10 for Banking) who are not minors and of unsound mind, may form a Partnership Business.
Partnership contract may be either written or verbal. But to avoid future misunderstanding of
conflict (for interest) among the partners, it is better to have a written contract. The essence
and basis of partnership is its contract. The patterns supply capital in any ratio as per the
agreement. A person may be a partner without supplying the capital, if all other partners
agree. In this case, the business efficiency, good will etc. of the economic person will be
regarded as the capital.

b) Development Stage: A partnership firm does

not have any artificial or separate entity other
than those its partners. In this business, the
partners have unlimited liability. They are
severally and jointly liable for the firm's debt. Its
registration is not compulsory partnership
business can be formed or run without any
registration. But to makes registration attractive
a registered firm is given some preferences
which are not given to an un-registered firm. To
register a partnership business, an application Fig. : Development of Partnership
be submitted to the registrar with fees due for
it. The name of the firm, place business, name
and address of partners, their
joining date, duration of the firm etc. are to be mentioned in the application and it shall have to
be signed by all the partners. If the Registrar is satisfied after verification of the application, he
then enlists the firm as a registered one. Before starting business, a firm has to collect trade
license from the Municipal Corporation. After getting that business can be started.

7.4 The Partnership Deed of Agreement

The deed of agreement is the essence of partnership. No partnership business can be formed
without an agreement. Those who are interested in forming a partnership business make a
decision on their supplying of capital, sharing of profit and loss, methods of conducting business
etc. This decision is considered to be the partnership contract. They form the business conduct it
and also dissolve it as per the contract.

A partnership agreement may be written or verbal. But it is better that the partnership agreement
is written because in base of necessity, it is not be possible to prove any term of the verbal
agreement accurately. Initial good relation may not be sustained for future interests. The written
agreement is called a partnership deed (Put everything in writing policy). This means, the
document is which the formation, objectives, methods of conduct, rights and liabilities of
partners are written, is called a partnership deed. To avoid future misunderstanding, dispute and
conflicts among the partners, necessary terms and conditions are written down there. The
difference is opinions or conflicts are settled down under this provisions of the contract. The
partnership deed has to be signed by all the partners. Any condition of the partnership is may
changed at any time with the consent of all the partners.

7.5 Why contract is the essence of the partnership business?

A partnership contract is called the articles of
partnership. It is the document that establishes the
terms of the partnership and the agreements
between partners. It is not necessary that a
partnership always have to be in written form.
People can form a verbally binding contract by
forming an agreement in a business discussion. A
partnership contract protects the partners in the
event of the death of one partner, at the time of
dispute, at the time of selling to a new partner or at
the time of dissolution of business. Contract is a
vital element for forming and operating the Fig. : Partnership Contact
partnership business successfully. Other benefits of
a partnership contract are discussed in the following
heads:

1. Specifies actual ownership: A partnership contract specifies exactly who owns what
percentage of a business. At the time of selling the business partnership contract delineates
who gets what.

2. Ensures proper control: Problem arises on the issue of controlling the business when two
partners own equally of a business. At the beginning of the business partnership contract
specifies who will control the business.

3. Solve dissolution problem: Several problem arises when one partner wants to dissolve the
partnership business. For solving this problem, a partnership contract specifies how the
business can be dissolved or a partnership can be transferred.

4. Helps to avoid conflict: A partnership contract is a legally binding document that allows the
partners to structure the relationship in a way that suits their particular business. it describes
the right to share in profit or losses for each partner, the responsibilities of each partner, and
the process for termination of business. By specifying all of this issues clearly in contract
conflict can be avoided in partnership business.

5. Helps in expulsion of a partner: A partnership contract can be used to expel a partner from
the partnership business. The reasons or situations for expelling a partner are specified in the
partnership contract. The method of determining the value of departing partner's share is
specified in the partnership contract.

6. Clarifies roles of the partners: A partnership contract sets out the roles that each partner
needs to play in the partnership business. The duties and responsibilities of a partner are
described in partnership contract.
7. Outlines entry plan: A situation may arise where one partner wants to bring another new
partner into existing business while the other currents partners are unsure of the person. For
solving this type of problem partnership contract is useful.

From the above discussion we can understand that a partnership contract outlines specific
details about the partnership business and for this reason it is advantageous to create this
document well in advance before starting the partnership business. That's why we can say that
contract is the essence of partnership business.

7.6 Contents of Partnership Deed

There is no hard and fast rule of law about the matters
to be contained in the deed of contract. But the terms
and condition of the business should be written in a
document with required amount of stamps and the
signatures of the partners have to be taken on that
document. The following aspect, should be included is
an ideal partnership deed.

1. The name, address and location of the partnership business. Fig. : Partnership Deed

2. The number, names address and professions of the partners.

3. The nature and duration of the business.

4. The total capital of business the amount of capital to be offered by each partner and the
system of payment.

5. The description of the management system and distribution of responsibilities among the
business.

6. The ratio and the system of dividing profits and loss.

7. The according and auditing system.

8. The name and address of the bank of the partnership farm.

9. The name and designation of the person who conducts the bank account.

10. The rule and procedures of expulsion of a partner and inclusion of a new partner.

11. The causes, rules and procedures of choosing the business.

7.7 A Specimen of a Partnership Deed

The partnership deed of M/S Ideal Enterprise

First Party Second Party

Md. R Md. K
Address: Address:
Table: parties in a partnership deed
This day of 15th January, 2012, the above mentioned two parties have agreed to form a
partnership business named Messrs Ideal Enterprise. On the basis of the terms and conditions
mentioned below and they have signed on this deed. Both the parties are adults, physically and
mentally sound and are Bangladeshi by birth. Both the parties shall be bound by the terms and
conditions of as contained in this deed of contract. Any conditions of the deed can be changed
with the mutual consent of both the parties. The Terms and Conditions of the Deed:

1. The name of the organizations: Messrs Ideal Enterprise.

2. Address of the business: 40, New Baily Road, Ramna, Dhaka-1000.
3. Aim and nature of the business: To publish and periodicals and conduct retailing and
wholesaling business.
4. Amount of the capital: The amount of the total capital is 50 lakh taka for the time being. But
in case of necessity, both the parties on the mutual consent will be able to increase the
amount of capital to future.
5. Supply of Capital: Both the parties will supply capital of equal amount.
6. Distribution of profits and losses: The profit and loss of the business will be divided equally
between the parties.
7. The name and address of the bank: Sonali Bank, Shantinagar, Dhaka.
8. Operating the Bank Account: A current account will be opened in the said bank against the
name of the firm and Mr. Rahim, the second party, will operate the account.
9. The fiscal account: The period from January to 31the December will be considered as the
fiscal year of the organization.
10. The final account: Every year within the 31st of December, the final accounts will be
prepared and will be audited by a Chartered Account.
11. The Auditing Firm: Haider and Company, 16 Bijoynagar, Dhaka, will work as the auditor of
the firm.
12. Management and Directorship: Both the parties will be responsible for directing the
business. But the 1st party, Md. Rahim, will work as the managing partner. For this he will
not get any extra allowance or remuneration.
13. Inclusion of a new partner: If, necessary, a new partner will be included on the consent of
both this parties.
14. Death of a partner : If a partner dies, his lawful heir if wishes will be the partner of the
business. But he has to sign the deed of contract and take the consent of the other party.
15. Repayment of Share: The dues of the dead partner have to be ascertained within next three
months and it has to be repaid to six three-monthly installments.
16. Dissolution of the business: If there is a necessary of dissolution of the business it has to be
done with the mind consent of both the parties.
We both the parties, accepting the terms and conditions of this deed have signed it consciously
and in a sound state of mind in front of the following two witness.
1. Mr. S Signature with date:

Advocate, Dhaka Supreme Court,

2. Mr. L Signature with date :

Adress:

7.8 Features of Partnership Business

Partnership organization is a business enterprise of more one person. When two more persons
establish a legal business with a view to sharing profits as per contract is called partnership
organization. The business is formed and conducted on the basis of partnership. The partners
enter into an agreement to conduct the business. Partnership business has some salient
characteristics that make it distinguish from other forms.

1. Contractual relationship: A contractual relationship exists among the partners in a

partnership business. Partnership business is a result of contract among the partners. If
there is no contract, there is no partnership. This contract may written or verbal. But to avoid
future conflicts, misunderstanding and disputes among the partners written contract is
preferred.

2. Easy formation: It is easy to form partnership business. More than one adult person can form
this business by making contract among them. There are no legal formalities to follow but
the business must be a legal one.

3. Number of members: According to Bangladeshi law there cannot be less than two partners
and more than twenty partners in an ordinary partnership business. But in banking the
maximum number of partners are ten.

4. Supply of capital or fund: The partners supply capital as per the ratio according to the
contract. A person can be a partner for his efficiency, experience and goodwill in the market
only without investing any capital. His experience expertise and goodwill are treated as
capital.

5. Unlimited liabilities: The liability of partners is unlimited. It means that the liability of
partners is not limited to the limit of his investment in the business. If the assets if the
business are insufficient to pay the debts, the partners are liable for payment of any such
claims from their own private assets if necessary.

6. Legal body: The partnership business has no separate legal entity like company. This business
is observes as combination of some partners. As a result, the partnership business itself
cannot make any contract or file any suit. Contracts are made in the name of the partners.

7. Trust and reliability: Partnership business is created on the basis of mutual trust and
reliability. This type of business continues to exit so long as there is mutual trust among the
partners. Each partner works as a representative of others.

8. Profit and loss sharing: The partners share profit and loss as per terms of the contract. If
there is no such terms then profits are shared equality.
 9. Conducting business: All partners can participate in conducting the business as per law. But
with the approval of all the partners, the responsibility of conducting the business can be
vested upon one or more partners.

10. Stability of the business: The stability of this business depends on the partners. They may
dissolve it any time. Besides, partnership business may be dissolved due to death, transfer of
share, insanity, insolvency etc. of a partner or if a partner is convicted by the court of law.

11. Agreement and deed: Whenever you think of joining hands with others to start a
partnership business, first of all, there must be an agreement between all of you. This
agreement contain so the amount of capital contributed by each partner; profit or loss
sharing ratio; salary or commission payable to the partner, if any; duration of business, if
any; name and address of the partners and the firm; duties and powers of each partner;
nature and place of business etc.

12. Principal agent relationship: All the partners of the firm are the joint owners of the
business. They all have an equal right to actively participate in its management. Every
partner has a right to act on behalf of the firm. When a partner deals with other parties in
business transactions, he/she acts as an agent of the others and at the same time the others
become the principal. So there always exists a principal agent relationship in every
partnership firm.

13. Non-transferability of interest: No partner can assign or transfer his partnership share to
any other person without the consent of all other partners. More features of the partnership
firm like: Limited ability of Partners and option for voluntary registration

7.9 Advantages of Partnership Business

Running a small business with a reasonably low turnover, a partnership is quite often a good
choice of legal structure for a new business. The way a partnership is set up and run as well as the
way it is governed and taxed often make it the most appealing form of business. However, there
are circumstances where this isn't the case. Being a partner, the business owners necessarily
share the profits, the liabilities and the decision making. This is one of the advantages of
partnership, especially where the partners have different skills and can work well together.
However, it can obviously present some problems. Over the years, many partnerships have turned
into problems. Family and friends go into business together and end up falling out on a personal
or business level and it all ends badly. This is one of the major disadvantages of partnerships over
other business models, but it's important to be able to balance the advantages and
disadvantages. Partnership business is larger than sole proprietorship. So, it enjoys some extra
advantages. Some of them are given below:

1. Easy formation: It is easy to term a partners business. There are not many legal formalities to
form it. Some adult persons who are eligible to make contract, can form this by making a
contract among them.

2. Collection of adequate capital: The partners jointly supply capital. So, they supply of relatively
large capital possible in such a business,

3. Assembly of many capable persons: Partnership business is run more than one partner. Of
these partners one may have enough money, while the other may have no money but
 intelligent efficiency and experience to run the business successfully. So, it is possible attain
success in such a business through participation of many capable partners.

4. Benefits of large business: In a partnership business there is enough supply of capital and in
assembly of skilled partners, so a relatively large size business can be organized.

5. Efficient management: The responsibilities works of the business are given to different
partners on the basis of their education, experience and efficiency. Each and everyone
contribute according to the best of his capability. So, the business can be run efficiency.

6. Risk and liability sharing: The business activities are distributed among the partners according
to their ability and the profit and loss are also shared by them as per terms of the contract. So,
the risk of the business is also shared by them.

7. Tax advantages: Partnerships generally have a tax advantage. Partnership business pays less
income tax and do not pay a tax on their profits. However, each partner must pay an income
tax on his share of profits.

8. Facilities of division of labor: For the smooth running of business, all the works are divided
among the partners with a view to enjoying the facilities of division of labors.

9. Public relations: It is necessary to maintain relations with different types of people for the
success of a business. The number of members of the partnership business is more than one.
So, by the joint efforts of all the members, a public relation is established which helps in the
success of the partnership business.

10. Consciousness of unlimited liability: The partners conduct business with great care and
sincerity because of their unlimited liabilities. They remain constant watchful and vigilant. As a
result the risk of business or possibility of loss is minimized.

11. Joint decision: The partners take decision jointly on all matters of business. In case of decision
making, the opinion of the two is always than that of the one. So, better decision is possible of
reach through discussion and analysis of related matters.

12. Flexibility: It is easy change or expands the business with the consent of all partners. As a
result these types of business can adjust itself with the changing conducting of the market.

13. Protection of minority interests: Every partner is entitled to participate in the decision-
making process and hence minority interest is protected.

Additional following heads may be considered to discuss the advantages of Partnership Business
are as follows;

i. Shared Responsibility;

ii. Decision Making;

iii. Sufficient capital;

iv. Facilities of loan;

v. Facilities of division of labor;

vi. Freedom from governmental regulations and restrictions;

vii. Reduces autocracy.

 7.10 Disadvantages of Partnership
Formation of partnership business is easy but there are some disadvantages of partnership
business which are discussed below:

1. Inadequate capital: It is true that, in partnership business more capital can be accumulated
which may not be possible in case of sole proprietorship business. But this amount is not
sufficient to establish a large business.

2. Investment withdrawal difficulty: A person who invests money in a partnership may have a
hard time withdrawing the investment. The money, typically considered a 'frozen investment"
is tied up in the operation of the business.

3. Lack of legal base: The registration of partnership business is not compulsory in our country.
They may or may not be registered. So the lack of legal base is the disadvantage of partnership
business.

4. Unlimited Liabilities: This is another disadvantage of this business. Even the personal assets of
partners may also be in jeopardy for the payment of business debts. If all the partners
excepting one become insolvent or bankruptcy, the remaining solvent partner shall have to pay
all the liabilities of business from his own assets. For this reason, solvent people are not
interested in this type of business.

5. Uncertainty and instability: This type of business suffers from uncertainly and instability. This
business can be dissolved with difference of opinion, the death, insanity or insolvency or any
partner. Besides, only an expression of a wish of a partner is enough to dissolve emergency.
The life of partnership is uncertain. If a partner dies or withdraws from the business, the
partnership is dissolved. A new partnership or some other form of business organization must
be legally established.

6. Delay in decision making: To make any decision relating to the business, the consents of all
partners are necessary. So, it is not possible to take a quick decision even at the time of
emergency.

7. Lack of mutual trust and confidence: This business depends on the mutual faith and trust
among the partners. Good relatives prevail among the partners at the beginning of the
business. But this faith disappears gradually in course of events. Misunderstanding and distrust
crop up among the partners. As a result the business is dissolved.

8. Trouble in management: every partner has the right to participate in the management of the
business. As result sometimes there is misunderstanding among them which creates problem
in conducting business affairs.

9. Lack of consistency: People do not rely on this type of business because it has no legal entity.
So it should be registered with written agreement.

10. Combined responsibilities: All partners are liable for a mistakes, incompetence or dishonesty
of a particular partner. As a result, the entire business may be affected.
11. Lack of privacy: Sometimes, it is not possible to maintain business secrecy because of its
members being more than one. If there is lack of trust and sincerity in the partners it is very
difficult to maintain secrecy.

Additional basis to state the Disadvantages of Partnership

 Obstacles in the transfer of share

 Risk of joint responsibility
 Danger of disagreements between the partners
 Taxation is the disadvantages of partnership,
 Sometimes equal profits sharing is inconsistence
 Risks of additional liability:

7.11 Who can be a partner?

Partnership is a business agreement in which partners are agreed to share the profits of a
business carried on by all or any of them for all. Persons who are competent to make contract can
enter into partnership agreement. A person with sound mind and with the age of majority can
enter into the partnership agreement. Those who can be a partner in a partnership business are;

1. Individual: An individual who is competent to contract can become a partner in a partnership

business. To be a partner, the individual should have sound mind and age should be minimum
18 years. A minor can't be a partner in a firm, but a minor can be admitted to the benefits of
partnership with the consent of all the existing partners.

2. Firm: A partnership firm is not a person and for this reason a firm can't become a partner of a
firm or an individual. But a partner of the partnership firm can enter into partnership with
other persons and he or she can share the profits of the said firm with his or her other co-
partners of the parent company.

3. Company: A company has a separate legal entity. That's why a company can become a
partner in a partnership business, if it is authorized to do so.

4. Trustees: Trustees of private religious trusts, family trust or other religious endowments are
juristic persons and for this reason they can be a partner of a partnership business, unless
their constitution forbid.

A partnership firm can't have more than 20 members. A partnership firm having more than 20
members is illegal. If the numbers of members are more than 20 in any association then it must
be registered as a company under company act. At the time of partnership between two firms all
the members of the two firms will be taken into account.

7.12 Admission of a new partner

A new partner may be admitted in a partnership business for several reasons like; raise more
capital, death of a partner, increased specialism in partnership. Admitting a new partner into the
firm is a straight forward process after finding the qualified candidate. After finding the right
candidate or partner for the business there are still some basic that have to be reviewed. These
issues for the admission of a new partner in a partnership business discussed in the following;
 1. Voting for admission: For admitting a new partner in partnership firm require a vote of either
the majority or 75% of the partners. A unanimous vote must be received by the partner in
small firm. But in large firm the chance for unanimous vote disappears.
2. Equity interest: The next issue that needs to be considered is the new partner's share in the
profit and losses of the firm. This consideration is based on some factors like; the partner's
salary history, contribution, the quality of the work performed etc. The new partner should be
informed about his or her share of income or losses in the partnership firm.
3. Amount of draw: After setting the new partner's share of profits and losses, the partner's
monthly or other periodic draw must be determined. It depends on several factors like; the
amounts draw by other partners, the cash flow position of the firm, the expected annual
distribution of the partner etc.
4. Capital contribution: It is more likely that the capital of the firm will change with the
admission of the new partner. How much capital the new partner will bring in the partnership
business needs to be determined. The amount of capital contribution will be proportionate to
the new partner's share of income and losses.
5. Revealing the financial statement: The partners of the firm needs to decide when to reveal
financial information to the new partner. It is believed that the new partner of the firm should
be provided with financial information as soon as possible.
6. Partner departure: A departing partner leaves a gap in the performance of administrative
duties as well as in providing services to clients of the firm. Although the partnership bears
primary responsibility for the firm's obligations, a contract ensures that the departing partner
shall be indemnified from continuing or new obligations of the partnership should be
included in the agreement.

7.13 Retirement of a partner

A partner or partners may retire from the partnership business for various reasons like; old age,
better opportunity, ill health, conflict between partners etc. The retirement of partner can be
done in following ways;
 In accordance with the consensus among all partners.
 In accordance with the partnership agreement.
 In accordance with the written notice, if the partnership is at will.
Some adjustments need to be done at the time of retirement of a partner. These are;
1. The share of the retiring partner left to the remaining partner. If new profit sharing ratio is
not given after the retirement of one partner then profit should be shared in old profit
sharing ratio.
2. The retiring partner has the right to share the increase or decrease in value of assets and
liabilities of the firm during the retirement period. To find out the profit and loss a
revaluation account is opened. The profit or loss in the revaluation account is to be divided
among all the remaining partners.

3. When a partner retires from a partnership business their remains some undistributed profit
and losses. These undistributed profits and losses should be distributed among all the
partners in their old profit sharing ratio.
 4. At the time of retirement, the retiring partner has the right to get his or her share of good will
of the firm.

5. When a partner retires from the business and if he or she is to be paid off his due amount
immediately the total capital of the firm reduced. For solving this problem, the retiring
partner may be requested to keep the amount due to him or her as loan to the firm which
will be paid gradually.

When a partner retires due to illness or any other reason, the partnership comes to an end. But
the form may not be dissolved as the other partner continues the business. Generally, a partner
retires on a date like at the end of the financial year. Retiring partners are entitled to remove their
capital from the business. As a result, the profit may be split among the remaining partners unless
they continue to use the retiring partner's partnership property.

7.14 Expulsion of a Partner

One of the crucial parts for operating partnership business properly is good working relation
between the partners. Sometimes relationships between partners hamper. In some case, some of
the partners decide they want to expel a particular partner. The grounds for expelling a partner
will be explained in detail in the partnership agreement. A partner may be expelled from
partnership business for certain reasons like;

1. Breaching the partnership agreement

2. Failing to carry out the partner's obligation under the agreement

3. Being charged of a crime,

4. Filling for bankruptcy

5. Professional misconduct.

Not all partnership agreement address expulsion. Some partnership firms don't even have written
partnership agreement. If expulsion is not addressed in partnership agreement or if partners
don't' have any written partnership agreement then the only way to expel a partner is to dissolve
the partnership and start a new partnership. But this process is very difficult and expensive.

In some partnership rules, even if expulsion is no authorized by the partnership agreement, the
partners may expel a partner by unanimous vote if;

a. the partner transfers substantially all of his or her partnership interest

b. it is unlawful to carry on the business with the partner
c. Partner's interest in the partnership becomes subject to a charging order.
Beside these, the partners may go to court and obtain a court order about expelling partner if;
a. the partner engaged in wrongful acts that affect the partnership business
b. the partner breached the partnership agreement
c. The partner's conduct makes it not reasonably practicable to carry on the partnership
business with the partner.
 The expelled partner must be provided an accounting and paid for his or her share of the
partnership business. Partners should have a fiduciary relationship with each other. They must
always act in good faith and refrain from taking any advantages of one another.

7.15 Rights and Liabilities of a Minor

A person who is a minor according to the law he or she may not be a partner in a partnership firm
but with the consent of all the members for the time being he may be admitted to the benefits of
partnership. With only minors as partner a partnership business can't be formed. There must be
at least two major partners before a minor is admitted into the benefits of partnership. Rights and
liabilities of a minor are discussed in the following;

Rights of a minor:
1. A minor has the right to share of the property and the profits of the firm as may be agreed
upon.

2. A minor has the right to access, inspect and copy any of the information or accounts of the firm.
3. A minor has right to sue for accounts only on severing his or her connections with the firm. A
minor also has the right to sue the partner of the firm on severing his or her connections with
the firm. But he can't sue against any partner of the firm if minor doesn't serve his or her
connection with the firm.
4. A minor has the right to elect to become a partner on attaining majority. He or she will then be
entitled to the same share he or she was entitled to as a minor.
5. A minor has also right not to elect to become a partner on attaining majority.
6. The minor is not entitles to take part in the conducting of the business.

Liabilities of a minor:
1. The minor is not personally liable to third parties for the debt of the firm but his or her liability
is limited only to his or her share in the partnership assets and profits.
2. When the minor becomes a partner by his or her own election, he or she becomes personally
liable to the third parties for all the debts and obligations of the firm from the date of his or
her admission to the benefits of partnership.
3. If minor choose not become a partner, his or her share will not be liable for any acts of the
firm.
4. After attaining majority and before giving public notice, he or she may be liable for holding
himself or herself as a partner.

7.16 Types of Partners

1. Active partner: A person who takes active interest in the conduct and management of the
business of the firm is known as active partner.
 2. Sleeping or dormant partner: A sleeping row dormant partner is one who does not take
active part in the management of the business. Such a partner only contributes to the share
capital of the firm and shares the profits and losses of the business. He is bound by the
activities of other partners.

3. Nominal or Ostensible partner: A nominal partner is one who does not have any real
interest in the Business but lends his name to the firm. Thus, he neither makes capital
contribution nor shares the profits of the business. He is admitted with the purpose of
taking advantage of his name or reputation. He is liable to an outsider as an actual partner.

4. Partner by estoppels or holding out: If a person, by his words or conduct, holds out to
another that he is a partner, he will be stopped from denying that he is not a partner. The
person who, thus, becomes liable to third partners to pay the debts of the firm is known as
a partner by holding out.

5. Partner in profits only: When a partner agrees with the others that he would only share the
profits of the firm and would not be liable for its losses, he is known as partner in profits
only. However he shall be liable to third parties like all other partners.

6. Minor as a Partner: A minor cannot become a partner as he is not capable of entering into a
contract. But with the consent of all the partners, he may be admitted to the benefits of
partnership.

7.17 Rights of Partners

Partnership is a business in which a relation exists between partners who have agreed to share
the profits or loss of the business. Rights of the partners in partnership business are generally
given in the partnership deed. If rights of the partners are not given in partnership deed, then
rights of the partners will be mentioned in the partnership act. Rights of partners in partnership
business are discussed in the following;

1. Every partner has a right to take part in the management of the partnership business.
2. Partners have the right to access all records, books and accounts of the business.
3. Every partner has a right to be consulted before taking any important decision. Consensus of
all partners is necessary for taking important decisions.
4. Every partner has the right to receive equal share in profits, unless otherwise mentioned, in
partnership deed.
5. For entering any new partner in the business, consent form all partners should be taken.
Without the consent of all partners no new partner can be entered in the business.
6. If any partner contributes more than all agreed share of capital, then he or she has a right to
receive interest at the rate of 6% per annum on the excess money that he or she supplied
over his capital.
7. A partner has a right to dissolve the firm under appropriate circumstance.
8. A partner has the right to take action in emergency situation for protecting the firm from loss,
but the actions taken by the partner must be reasonable.
9. Every partner has the right to retire according to deed or with the consent of other partners.
10. Every partner has a right to be indemnified by the firm in respect of expenses incurred or
losses suffered for the normal conduct of the business.
11. Partners have the right to use the property of the business for the purpose of the business.
12. A retiring partner has a right to carry on compatible business i.e. business similar to the firm's
business, but he or she can't use the firm's name in which he or she was originally a partner.
The rights of the partners that are described above are generally laid down in the partnership
deed or in the partnership act. No partner can claim any right from the business that are not
described in the partnership deed or partnership act.

7.18 Duties of Partners

Partners of the partnership business are bound to carry on the business of the firm to the
greatest common advantage. Partners need to be just and faithful to each other. Every partner is
bound to indemnify the firm for any loss caused to it by fraud in the conduct of the business.
There are several duties partners have in partnership business. These duties of partners in
partnership business are discussed in the following:
1. Loyalty and good faith: Every partner must be loyal and faithful to other partners. One
partner must not take advantage over other partners by misrepresentation or concealment.
No competing business can be promoted by any partner. If he or she does so, he or she can
be liable for any damage sustained by the partners.
2. Reasonable care: A partner must use reasonable care in transacting the partnership
business. Partner will be liable for any loss that occurs due to the lack of reasonable care by
the partner.
3. Provide actual information: A partner has the duty to inform the partnership of all matters
relevant to the partnership. If one partner is going to buy the interest of another partner, it
must be informed to all partners.
4. Management: Each partner needs to take part in the management of the business all
partner should contribute equally in the management of the business.
5. Inspection of records: All books and records of the partnership business should be inspect
by the partner properly.
6. Share of profits: Each partner is entitled to share the profits. In the absence of the
agreement, each partner is entitled to an equal share of the profits without regard to the
amount of capital or services contributed to the partnership by each partner.
7. Repayment of loans: A partner is entitled to reimbursement of money advanced to the
partnership business.
8. Partner's liability: Partners are jointly liable for all mistakes committed by one of the
partners in the partnership business. Partners are also liable for an injury caused to a third
person while working for the business. The third person may sue all or any of the partners
of the partnership.
9. Indemnify the loss: Every partner is bound to indemnify the firm for any loss caused by his
or her neglect or fraud in the conduct of the business.
10. Use of firm's property: Every partner should use the firm's property for the interest of the
firm's business.
11. Act within authority: Every partner is bound to act within the scope of authority. If the
partner exceeds the authority and the firm suffers from any loss, the partner will have to
compensate the firm for such loss.
From the above discussion, we can understand that partners owe each other and the business
certain basic duties. The most important and fundamental of these duties is the duty of good
faith. Beside this duty partner needs to fulfill other duties of the partnership business properly.
Otherwise it won't be possible to run the partnership business successfully.

7.19 Liabilities of a Partner

The partners in limited liability partnership are called members. An LLP is a separate legal entity
which provides full limited liability for its members or partners. In an unlimited liability
partnership, every partner is jointly liable with all other partners in the partnership for all of the
debts and obligations of the partnership. Liabilities of a partner in a partnership business are
discussed in the following;
1. Partners are bound to carry on the business of the firm to the greatest common advantage.
2. Partners need to be just and faithful to each other for conducting the partnership business.
3. Partners are bound to carry on the business by rendering true accounts and full information
of all things affecting the firm.
4. If partner derives any profits for himself or herself from any transaction of the firm, he or
she shall account for that profit and pay it to the firm.
5. If partner carries on any business of the same nature which competes with the firm, he or
she shall account for and pay to the firm all profits mad by him or her in that business.
6. After the dissolution of the firm a partner can be liable to a third party for any act done by
any of the partner which would have been an act of the firm before the dissolution, until
the public notice is given of the dissolution.
7. In an unlimited partnership every partner is jointly liable with all other partners in the
partnership, for all of the debts and obligations of the partnership. Every partner is also
jointly liable for any losses or damages arising from the wrongful acts of any of the partners
carried out with the authority of the partners.
8. In limited liability partnership, third party will contract with the LLP rather than individual
members of the LLP. The LLP will be liable for any breach of its obligations.
From the above discussion it is clear that, a partner is legally bound to any business transaction
made by him or any of his partners and he can be held responsible for those actions taken by him
or his partners.

7.20 Types of Partnership

A partnership arises whenever two or more people co-own a business, and share in the profits
and losses of the business. Each person contributes something to the business such as ideas,
money, or property though management rights and personal liability will vary depending on
which of three modern partnership forms the business takes:

1. General partnership,

2. limited partnership, and

3. Limited liability partnership (LLP). Each form Partnership is discussed below:

1. General Partnerships: A general partnership involves two or more owners carrying out a
business purpose. General partners share equal rights and responsibilities in connection with
management of the business, and any individual partner can bind the entire group to a legal
obligation. Each individual partner assumes full responsibility for all of the business's debts
and obligations. Although such personal liability is daunting, it comes with a tax advantage:
partnership profits are not taxed to the business, but pass through to the partners, who
include the gains on their individual tax returns at a lower rate.

2. Limited Partnerships: A limited partnership allows each partner to restrict his or her personal
liability to the amount of his or her business investment. Not every partner can benefit from
this limitation -- at least one participant must accept general partnership status, exposing
himself or herself to full personal liability for the business's debts and obligations. The general
partner retains the right to control the business; while the limited partner(s) do(es) not
participate in management decisions. Both general and limited partners benefit from
business profits.

3. Limited Liability Partnerships (LLP): Limited liability partnerships (LLP) retain the tax
advantages of the general partnership form, but offer some personal liability protection to
the participants. Individual partners in a limited liability partnership are not personally
responsible for the wrongful acts of other partners, or for the debts or obligations of the
business. Because the LLP form changes some of the fundamental aspects of the traditional
partnership, some state tax authorities may subject a limited liability partnership to non-
partnership tax rules. The Internal Revenue Service views these businesses as partnerships,
however, and allows partners to use the pass through technique.

Existing partnerships that wish to take advantage of LLP status do not need to modify their
existing partnership agreement, though they may choose to do so. In order to change status, a
partnership simply files an application for registration as a limited liability partnership with the
appropriate state agency. All states require disclosure of the partnership's name and principle
place of business. Some states also require, among other things, identification of the number of
partners, a brief description of the business, a statement that the partnership will maintain
insurance and written acknowledgment that the limited liability status may expire.

7.21 Ordinary vs. Limited Partnership

There are two types of partnership; a) Ordinary or general partnership, b) Limited Partnership. In
an ordinary partnership, each partner can incur obligations on behalf of the partnership, and each
assumes unlimited liability for the partnerships debts. In limited partnership, partners are
involved with limited management responsibility and limited liability. There are several
differences between an ordinary partnership and a limited partnership. These differences are
given in the following:

Ordinary partnership Subject Limited partnership

Ordinary partnership is a type of
partnership business in which all
partners share in the management
and liability of the business.
matter
Definition Limited partnership is a type of
partnership business in which partners
are involved with limited management
responsibility and limited liability of
the business. Limited partnerships
 involve at least one general partner
and one limited partner.

In ordinary partnership, all of the Management In limited partnership, all of the

partners have the ability to actively partners don't have the ability to
manage or control the business. actively manage or control the
business.

Partners in an ordinary partnership Limit on A limited partner doesn't have total

don't have any limit on their personal responsibility for debts of the
personal responsibility for the debts responsibility partnership business.
of the business.

In ordinary partnership, each Unlimited In limited partnership, each partner

partner has unlimited liability for the liability has limited liability for the actions of
actions of the partnership business. the partnership business.

Ordinary partnership is started or Reason to Limited partnership is started or

formed while several partners are
investing personal expertise in the
business and each of them are
willing to take active role in the
management and operation of the
company.
start formed to raise capital for business
start-ups where partners are not
interested in taking active role in the
management and operation of the
company.

There are no formal filing Filing For forming limited partnership

requirements to form an ordinary requirements business formal filing is required.
partnership business.

Doing business in ordinary Costly and Doing business in limited partnership

partnership is less costly and less Complicated is costly and complicated.
complicated

7.22 Registration of Partnership Organization

The registration of a partnership business is not compulsory as per the law completely depends
on the will of the partners. If the partnership business registered the deed becomes a lawful
documents and the registered firm gets some extra facilities which the unregistered one does not
get. For registration one has apply in a prescribed from available from the office of the Registrar,
appointed by the government. The partners will fill in the application from accuracy and sign it
with date. They have to pay a certain fees for registration. One has to mention the followings in
the application form:

1. The name and address of the partnership firm,

2. The aim nature of the business.

3. The head office of the business,

4. The duration of the business,

 5. The date of joining the partnership business.

6. The name and address and professional of the parties.

If the Registrar is satisfied with the statements in the application form, he enlists the firm by
examining the statement. If there is a change in the address, names and the location of the
business, the registrar has to be informed of it properly. A copy of the notice of the retirement or
expulsion of the partner or the closing of the firm must be submitted to the registrar. Moreover,
these have to be published in the government gazettes and also in a widely circular newspaper of
the country in mother tongue.

7.23 Demerits of an Unregistered Firm

In the partnership Act, 1932 adopted in Bangladesh, the registration of a partnership business has
not been made compulsory. But if it in registered the firm and its partners get some additional
advantages which an unregistered firm cannot get. Some disadvantages of partners of an
unregistered firm have been mentioned in the law. To avoid these disadvantages, the partners of
a firm are encouraged to register their firms. The disadvantages are as follows:

1. An unregistered firm cannot sue case or cannot take any legal action to establish its
contractual rights. Similarly,

2. A partner of an unregistered firm cannot file any case against the firm or co-partners, if the
firm does not get his contractual rights. But a third party can sue against such firm of
partners to get his rights.

7.24 Dissolution of a Partnership Organization

Dissolution of firm and dissolution of partnership are different. In dissolution of partnership, the
business of the firm does not come to an end and it continues as before. There is only change in
relation of partners due to death, retirement etc. but in the case of dissolution of firm,
partnership between all the partners come to an end. Thus, dissolution of firm automatically
dissolves partnership. A partnership of dissolved automatically

a. When the term for which the partnership was entered into expires.

b. When the purpose and which the partnership was formed is completed, and

c. When a partner dies, retires or becomes insolvent.

The end of the contractual relation among the partners is called dissolution. A partnership
business can be dissolved for different reason. These are as follows:

1. Dissolution by common decision of both the parties: A firm may be dissolve with the consent
of all the partners. Besides, this business may also be dissolved on the expiry of the contract
period.

2. Dissolution by notice: Any optional partnership business may be dissolved through a

notification. A partner may dissolve the firm at any time through a notice.

3. Dissolution in the event of unpleasant activities: A Partnership business may be dissolved due
to any of the following causes.
 a) If a partnership business is constituted for a fixed period and if the expiry of that period is
over.

b) If it is formed to carry on a definite aim or purpose and by the completion of that aim.

c) If a partner dies or goes mad.

d) If a partner retires from the business.

e) By bankruptcy of a partner declared by the court of law.

4. Mandatory dissolution: The partnership business will be dissolved compulsorily due to the
following causes:

 If any one or all the partners are declared bankrupts

 When the business becomes illegal
 If the activities of the business are declared illegal for special causes or by the
introduction of a new law, that is, if a partnership business is against the law or is
declared illegal.

5. Dissolution by the order of the court. The court may dissolve a firm, on any of the following
grounds.

 If a partner become mad permanently

 When a partner becomes permanently
 If a partner is proved to be a bankrupt
 If the business of the firm cannot be carried on without a loss.
 If a partner transfers illegally all his shares to a third party or all his shares are taken over
by the court.
 If a partner is proved dishonest in carrying on his business
 If a partner is punished by the court of law.
 On any other grounds which the court thinks just and appropriate to wind up the
business.

7.25 Partnership Management Strategy

The Famous Attorney and CPA Mr. Kohler has given some issues to consider before you ink any
partnership deal and some tips to manage partnership business

 Obviously, only go into business with those you trust. Vet everyone in your business dealings,
whether it is a contractor, a tenant, etc. This could mean conducting background checks and
calling personal references. This is especially true with your business partner(s) and is by far
the most important way to protect you when entering a partnership.
 Address potential issues before they become issues. Talk about worst-case scenarios. If your
partner isn't willing to do so, for whatever reason, you have the wrong partner.
 Read and understand your partnership documents before you sign them. A good attorney can
help you identify possible issues and present solutions, but ultimately you and your business
partner(s) need to take ownership of the agreement and share a thorough understanding of
how it will govern your business.
 Consider getting separate counsel if using the same attorney as your partner(s) is presenting
concerns.
  If you live in a community property state, have every business partner's spouse sign the
partnership/operating agreement and any amendments. The spouse presumably has an
ownership interest in the business, and you want them to agree to the provisions of the
partnership/operating agreement. This is especially important regarding the method of
valuing the business when buying out a partner in the event of a divorce.

After all the documentation's been completed and you begin operating as a partnership, you
should follow several procedures for a successful venture.

a. Communication and documentation. As the business partnership evolves, record and

document anything that's contrary to your initial partnership/operating agreement. A good
partnership/operating agreement will allow for revisions due to changing circumstances, but
these should always be in writing and signed by each business partner.

b. Be involved in your business. Don't ever think a partnership is a turnkey operation. People
who aren't in constant communication with their partners will soon find themselves on the
outside and in a dispute. Clearly understand your duties and responsibilities, and fulfill the
expectations of your partners or readdress what those expectations should be.

c. Book keeping and tax deposits. Don't cut corners on bookkeeping and finances. This is the
lifeblood of your business and will determine when and how your profits are distributed.
Making sure your tax deposits are made on time and in the right amounts is also the
backbone of good tax planning in your partnership. Beware of “phantom income,” which is
income from the partnership that exists on paper but has no corresponding distributions. This
can wreak havoc on a partner's individual tax return without proper bookkeeping and
planning.

Exercises
Multiple Choice Questions:
1. Which of the following is the basic element of partnership?

a) Profit making b) Deed

c) Trust worthy d) Representative

2. What is the maximum number of partners in general partnership?

a) 7 b) 10

c) 20 d) 50

3. What is the maximum number of partners in banking partnership?

a) 7 b) 10

c) 20 d) 50

4. In which partnership act directs the all partnership business in Bangladesh?

a) 1913 b) 1932
 c) 1994 d) 1960

5. Which of the following partnership is mandatory to register?

a) Willing b) Limited

c) General d) Profit basis

6. What is principal factor of partnership business?

a) Profit b) Contract

c) Trust and confidence d) legality

7. The nature of liability of partnership business is-

a) Limited by shares b) Unlimited

c) Less than share d) Mutual

8. The deed of partnership business is signed by-

a) All partners b) Majority partners

b) 50% partners d) Two partners

9. The partner who doesn't only contribute the capital in the business but also run the
organization by his creative and innovative power is called-

a) Working partner b) Nominal partner

c) Quasi Partner d) Idle partner

10. When the partnership is mandatorily dissolute?

a. Death of a partner b) Partner is corrupted

c. Partner is bankrupt d) Partner is going to retirement

17. What is principle factor of partnership business?

a. Profit b. Contract

c. Trust and confidence d. Legality

18. Members in general partnership business is up to

a. 10 b. 20

c. 30 d. 40

19. Partners in banking partnership business is up to

a. 10 b. 15

c. 20 d. 05
20. According to liability the classes of partnership business is

a. 3 b. 2

c. 4 d. 5

21. Partnership business is formulated and implement/enacted according to the Act of

a. 1913 b. 1912

c. 1932 d. 1994

22. The main base of partnership is

a. Goodwill b. Capital

c. Skills d. Contract

23. 'Contract is the essence of partnership business'. According to partnership Act 1932, which
clauses indicate that?

a. 2 b. 3

c. 4 d. 5

24. The nature of liability of partnership business is

a. Limited by shares b. Unlimited

c. Less than share d. Mutual

25. The deed of partnership business is signed by

a. All partners b. Majority partners

c. 50% partners d. Two partners

26. The registration of partnership business is not

a. Compulsory b. Optional

c. Unnecessary d. Voluntary

27. Those partners who directly contribute in the capital of business and directly take part in
various functions of it is called ordinary or active partner.

a. Ordinary partner b. Quasi partner

c. Dormant partner d. Nominal partner

28. One, who contributes the capital in the organization, takes part in profit or loss of the
organization but doesn't take part directly in partnership business. These partners also have
unlimited liabilities alike direct partners. But they don't require giving any public notice if any
one takes retirement from this business and after the retirement he/she is not liable to any
third party.

a. Dormant or sleeping partner b. Ordinary partner

c. Nominal partner d. Goodwill partner

29. The partner who doesn't only contribute in the business but also run the organization by his
creative and innovative power is called

a. Working partner b. Nominal partner

c. Quasi partner d. Idle partner

30. Partner who doesn't contribute capital or doesn't do any management work of business,
but they allow their 'good will" to be used instead of some salary or money is called Ð
partner. They are not included either various liabilities alike other general partners.

a. Nominal partner b. Quasi partner

c. Idle partner d. Adhoc partner

31. If any partner after his retirement from business organization doesn't take away the amount
contributed in business as capital or left the amount as a loan to the business organization is
regarded as

a. Nominal partner b. Idle partner

c. Deceptive partner d. Quasi partner

32. .... is a person whose liability is limited to the amount that he has paid to the business.
Liabilities are limited with the amount of capital contributed for them. According to type of
partners can't take part in business management. If there is one or more than one listed
partners in a partnership organization then it termed as limited partnership organization.

a. Limited partner b. Unlimited partner

c. Optimist partner d. Pessimist partner

33. According to section 28 (1) of partnership Act 1932, if any one not by signing the
partnership contract but expresses himself as partner verbally or introduce himself as a
partner by writing or any exceptional behavior then he/she is considered as

a. Limited partner b. Unlimited partner

c. Quasi partner d. Partners by holding out

34. If the business or partners of business tell any person as their partner and that individual if
remain silent then that particular person is called

a. Limited partner b. Unlimited partner

c. Quasi partner d. Partner by estoppels

35. Three partners including two minors started to do a partnership business. What type of
partnership business it is

a. General b. Volunteer

c. Limited partnership d. Special

36. T.K.R started a partnership business. All have given capital except K.R just contributes his
labor in this partnership business. It is called
 a. Nominal partner b. Working partner

c. Idle partner d. Ideal partner

37. Rahim started a business with Noyon. Noyon is moinar at 10 years age. What type of business
it is

a. Sole proprietor b. Partnership

c. Co-operative d. Joint venture

38. Shimul and Kamrul started a flower business at Chowhatta in Sylhet. They treated Naimul as a
partner in their business. But Naimul was remain silent with them. This type of partner is

a. Limited partner b. Unlimited partner

c. Quasi partner d. Partner by estoppels

39. When the partnership is mandatory dissolute

a. Death of a partner b. Partner is corrupted

c. Partner is bankrupt d. Partner is going to retirement

40. A and B started a cloth business at Bosundhara City in Dhaka, Bangladesh. What is the main
base of their business?

a. Contract b. Friendship

c. Relation d. Legal

41. Trust and confidence Limon and Ahad started a magazine shop at Jamuna future park. If
Sunam, not by signing the partnership contract with them but expresses himself as partner
verbally or introduce himself as a partner by writing or any exceptional behavior then he/she
is considered as

a. Limited partner b. Unlimited partner

c. Quasi partner d. Partners by holding out

Answer:

1. b 2. c 3. b 4. b 5. b 6. b 7. b 8. a 9. a 10. a 11. b
12. b 13. a 14. b 15. c 16. d 17. c 18. b 19. a 20.a 21. a 22. a
23. a 24. a 25. d 26. a 27. d 28. d 29. d 30. b 31. a 32. d 33. a
34. a 35. d 36. b 37. a 38. a 39. a 40. a 41. d

Analytical Questions:
1. Nishi and Runa established a partnership business for 7 years. They took the decision to
expand the business without taking a new member and they did as they planned.

a) Who is the allowed behavioral partner?

 b) Why deed is called the basis of partnership business?

c) In primary level, what kind of business it was? Explain.

d) Without taking any new member, how can they expand their business? Explain.

2. Naima and her two friends Ruba and Shila, made an oral contracts to establish a fashion shop.
Their hard work made them successful. Now they are thinking about the capital collection from
public to expand their business.

a) What is partnership deed?

b) How can be the success of business depends on trust and belief?

c) What kind of business is it? Explain.

d) How can the capital be collected from public? Explain.

3. A business farm has been developed by two friends named Rahat and Imran. But they used
Rakib's goodwill in their business. When Saikat knew that Rakib is involved in the business, he
also invested in the business. He is now the creditor of this business in half million. But the farm
is unable to Saikat's money.

a) What is called limited partner?

b) Can minor be a partner?

c) What kind of partner is Saikat in the passage? Explain.

d) Is Rakib would be liable for paying creditor's money? Analyze.

4. Asif and Akash decide to go into business, selling discounted merchandise through their Web
site "e-Buy." They sign a partnership agreement that requires Asif to contribute $12,0000 and
Akash to contribute $8,0000 in capital to start the firm. The agreement says nothing about the
management of the firm or a division of profits. In the first year, e-Buy makes a profit of
$50,000. What are the partners' rights with respect to the management of the firm? Do the
partners split the first year's profits? If so, how much is each entitled to?

5. Mr. Sonil, Benil, Tanil and Monil are four friends. They have completed their graduation major
in fashion and design technologies from fine & arts institution in Chittagong University. They
have decided to open a fashion house at Midwest Road in Dhaka. They invested equal capital in
business and made an agreement in this regard. Moreover, Mr. Monil has given his consent to
work as active partner. They also agreed to share the risks and profit according to the deed of
the partnership business. Their business is earning a good rate of return of their investment.
They are also considering to expand their business by using their goodwill in the field of
management. Read the story very carefully and try your best to answer the following:

i. What is partnership deed? What should be the contents of partnership deed?

ii. What do you mean by nominal partner?

iii. Good management approach contributed to earn the success of the venture. Explain.

iv. How does goodwill can help to promote the business of fashion house? Explain.
Review Questions:
1. Define partnership business and essential elements of partnership business.

2. Discuss about partnership deed and its importance in forming partnership business.

3. 'Contract is the essence of partnership business"- Explain this.

4. Discuss the objectives of partnership business.

5. Discuss the classification of partnership business and identify which one is the most
popular and why.

6. Who can be a partner? And discuss duties and responsibilities of a partner?

7. What is the process of admission of a new partner?

8. How does a partner can get retirement?

9. Discuss the problems of partnership business in Bangladesh.

10. Discuss the rights and liabilities of a minor.

11. Why the partners have unlimited liability in partnership business?

Previous Questions:
Previous Questions:

1. Describe some salient features/elements of a partnership business. [BBA,

CU,2017,2016,2013]

2. What are the types of partners and partnership? Discuss. [BBA, CU,2017,2016,2015]

3. Compare the key characteristics/differences of a sole proprietorship, partnership and joint

stock company. [BBA, CU,2017, 2016,2013]

4. Distinguish between partnership and private limited company. [BBA, CU,2013]

5. Define Partnership Deed. [BBA, CU,2016,2014]

6. Agreement: the essence of partnership discuss. [BBA, CU,2015]

7. Define partnership. What are the various advantages and disadvantages of partnership form
of business. [BBA, CU,2017,2015]

References and Bibliography:

1. Enamul Hoque, Introduction to business

2. Doing Business in Bangladesh, M.M.Mahamud and SelimUddin.

3. A.T.M Faizul Hoque, Introduction to business

4. www.bdyellowbook.com/catalog/Community.../Co_operative_Society/

5. http://www.milkvita.org/information.html

6. www.thefinancialexpress-bd.com/more.php