Different forms of business have evolved gradually. Partnership may be called a secondary development after proprietorship. When two or more persons develop a contractual relationship between or among them for doing certain type of business, it is called a partnership business. To cope with limitations of single venture (proprietorship) joint venture (partnership) was started.
Definition of partnership business
Some Definitions of Partnership
1. According to Indian Partnership Act of 1932: ” Partnership is the relation between persons who have agreed to share profits of a business carried on by all or any of them acting for all.”
2. According to British Partnership Act of 1890: ” Partnership is the relation which exists between persons carrying on business in common with a view to profit.”
3. The Uniform Partnership Act of the U.S.A.: ” Partnership is an association of two or more persons to carry on as co-owners a business for profit.”
4. According to Professor Thomas: ” A partnership is an association of people who carry on business together for the purpose of making profits.”
Thus, partnership is an association of persons to carry on certain kind of business for the purpose of making profit.
Characteristics of Partnership Business
Different characteristics of partnership business are as follows:
1. An Association of persons: A partnership is an association of two or more persons. According to Partnership Act (IX of 1932), the number of partners must be 2 to 20 in case of normal business and 2 to 10 in case of banking business.
2. Contractual relationship: Contract is called the essence of partnership business. The rights and duties of partners are written in the contract. In case of absence of contact or provision’s in the contract, provisions of partnership act will prevail.
3. Combined capital: The capital of a partnership business is contributed by all partners equally or in some agreed-upon proportion.
4. Unlimited liability: Like proprietorship business, the liability of partners in the partnership business is unlimited, i.e., the partner’s personal asset is also liable for the business debt.
5. Joint management and control: The partners make an assignment of duties and responsibilities among them to run the business.
6. Division of profit or loss: The partners in the partnership business obtain profit or bear loss according to agreed-upon provisions, i.e., equal or in proportion to contributed capital.
7. Registered status: Unlike proprietorship, the partnership may be registered with appropriate authority appointed by the government.
8. Medium type business: Partnership can operate the business, usually, larger than that possible by a proprietorship business.
9. A combination of capital and skill: As different persons associate in the partnership, so there is a combination of capital and skill.
10. Dissolution: A partnership may be dissolved at any time. Any conflict between or among partners may cause an end to partnership and or business also.
Thus, partnership is a business of joint ownership and joint management.
Partnership business advantages and disadvantages given below:
Advantages or Merits of Partnership Business.
Partnership business has certain advantages over and above proprietorship business. These advantages are as follows:
1. Joint ownership and more strength:Partnership business is a form of joint ownership of several persons and process financial and managerial strengths then proprietorship business.
2. Combination of expertise: Different parsons possess different skills and expertise. Through the formation of the partnership, the skills of different persons may be combined and harnessed to launch a successful business.
3. Advantages of unlimited liability and integrated entity: Partnership business has no separate entity and liability of partnership is unlimited. For unlimited liability, partners can borrow more money, as their parson assets are also liable for business debt.
4. Easy formation: Partnership business can be easily formed, as many legal formalities need not be carried out.
5. Maintenance of secrecy: To some extent, business secrecy can be maintained in the partnership business than the public limited companies, where information disclosure is legal requirement.
6. Maintenance of personal contact: Partners in partnership business is directly involved in the direction and management of the company, so they can maintain personal contact with the customers. Personal contact with customers accelerates business success.
7. Team spirit: partnership is a kind of joint venture, so cooperation and team spirit are necessary for its success. Conflict (s) and controversy (s ) may cause termination to the partnership. Thus, a partnership develops a culture of cooperation among the partners.
8. Equal rights of all partners: The partners in the partnership business enjoy equal rights. Even a single partner or any minority can play a vital role in the decision-making, management, and dissolution of a firm.
9. Flexibility in alternation and operation: A partnership business can be easily altered according to the changed situation and the new experiences of the partners. Strict formalities need not to be carried out.
10. Easy dissolution: A partnership business can be easily dissolved, as few legal formalities are involved.
Thus, the partnership is a joint venture of individuals, it has some unique advantages over proprietorship business in running the business on some large scale.
Disadvantages or Demerits of Partnership Business:
In spite of various advantages, partnership business suffers from some disadvantages, which are as follows.
1. No separate entity: Partnership business has no separate entity like joint-stock companies. As a result, partnership suffers from some disadvantages; because the partner’s properties and the properties of the business are of some status in the eye of law.
2. Conflict among partnerships: Partners, individual power is more than a shareholder in company. As a partnership is an association of persons, who may be of different attitudes and cultures, so there is always a fear of conflict among partners, which consequently may cause dissolution of the partnership.
3. Limited financial abilities: Partnership business may grow and expand over time beyond the total financial abilities of the partners. Because of the limited number of partners and their financial abilities, capital constraints may arise and, thus, block business expansion.
4. Poor public confidence: Partnership firm has no legal status, consequently public confidence upon it is poor in comparison to that enjoyed by companies or corporations. As a result, sufficient credit may not be available.
5. Fear of dishonesty and conspiracy: Any partner may commit dishonesty and conspiracy, which may cause losses to the business and all partners may be affected.
6. Lack of swiftness in decision making: Unlike proprietorship business, the decision making in partnership is time-consuming, as all or majority of the partners are required to be one headed for any decision.
7. Poor coordination: Different partners may be of different opinions, so prompt coordination may be difficult in partnership business.
8. Long-term liability: A partner may be liable for business debt, even after a longer period of his retirement from the download business.
Thus, a partnership business suffers from a number of disadvantages.