Classwork Series and Exercises (Business Studies – JSS1): Partnership

Forms of Business Organisation (Partnership)
Contents:

1. Meaning of Partnership
2. Types of Partnership
3. Kinds of partners
4. Sources of capital
5. Advantages and disadvantages of partnership

Meaning of Partnership
Partnership is a form of business organisation in which two individuals combine to own and run a business for the purpose of making profit. It is a form of business in which 2 to 20 people come together, combine resources, contribute their skills, talent etc to run a business with the aim of making profit.

Types of Partnership

1. Ordinary partnership: Ordinary partnership is also known as general partnership; it is a partnership where all partners have equal responsibility in the affairs and management of the partnership business.

2. Limited Partnership: Limited partners do not take part in the day to day running of the business. A limited partnership is a form of partnership similar to a general partnership, except that in addition to one or more general partners (GPs), there are one or more limited partners (LPs). It is a partnership in which only one partner is required to be a general partner

Kinds of Partners

• Nominal or quasi partners: This is a partner who contributes only his name to the formation of the business. He is always an important person in the community. He does not contribute capital and not involve in the managing of the business.

• Active partner: An active partner takes an active role in the business, he contributes capital and get involved in the day to day running of the business

• Sleeping or dormant partner: A sleeping or dormant partner contributes only his/ her money to the business but do not take active role in the business.

Sources of Capital
Sources of capital for a partnership business are mentioned below:

• Undistributed profit; this is part of profit made in the business but are left aside for the continuation of the business
• Members initial contribution
• Loans and overdrafts from banks
• Credit purchase from companies or individuals

The formation of a partnership business is always backed up by a legal document known as partnership deeds. It contains the following

• How to admit new members
• The contribution of each partner
• How to share the profit and losses of the business
• The duties of each partners
• The nature, type and location of the business
• How to end the business when the need for it arises

Advantages of Partnership
• There is more capital involved and available for the business
• There is more profits in a partnership business
• The business account is not made to the public
• Partners can agree to go on leave without stopping or disturbing the business
• It allows for division of labor
• The individual talents and skill will bring about better management of the business

Disadvantages of Partnership
• Death or withdrawal of any member of the business can bring the business to a close
• It is not a legal entity i.e. it cannot sue or be sued in its name
• Any action taken by a member will affect other members of the business
• Disagreement or quarrels among the partners may lead to the end of the business

Test and Exercise
1. A partnership business is made up of ———– members (a) 10 to 50 (b) 2 to 20 (c) 5 to 15 (d) 1 to 10
2. The formation of partnership is always backed up by a legal document called (a) partnership agreement (b) deeds of partners (c) partnership deeds (d) all of the above
3. All are advantages of partnership business except (a) There is more capital involved and available for the business (b) there is more profits in a partnership business (c) the business account is not made to the public (d) Disagreement or quarrels among the partners may lead to the end of the business
4. ——————-is a form of business organization in which two to twenty individuals combines to own and run a business for the purpose of making profit (a) partnership (b) sole proprietorship (c) co-operative (d) all of the above
5. The aim of a partnership business is to (a) get interest (b) make profit (c) render free service (d) offer essential service.

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