Classwork Series and Exercises {Financial Accounting – SS2}: Types Of Partnership

Financial Accounting, SS 2, Week 7

Topic: Types of  partnership

Contents

• Types of partnership
• Features of limited partnership
• Features of ordinary partnership
• Types of partners

Types of Partnership

1. Limited partnership: This is registered and formed under the limited partnership act, it is a form of partnership which there should be at least one ordinary partner who should be responsible for the business if it fails.

Limited partnership is a form of partnership similar to a general partnership, except that where a general partnership must have at least two general partners , a limited partnership must have at least one general partner and at least one limited partner.

Features of Limited Partnership

1. The liability of each partner is limited to the amount invested by each partner
2. It should be registered under limited partnership
3. One ordinary partner should be responsible for the debt of the partnership firm.
4. A limited partner is not permitted to participate in the management of the firm.
5. The limited partners can have access to the account of the partners.

  2. Ordinary partnership: under this type of partnership all partners have equal responsibilities and power each may participate in the management of the business. They are equally responsible for the partnership liability which is unlimited to all the partners take active part of the day to day running of the business and are liable or responsible for the firm liability.

Features of Ordinary Partnership

1. They are liable to the full excess of the debt of firm private properties
2. Partner5s can be sue for the firm liabilities
3. All partners have equal right in decision making
4. Each partner take active part in the management of the firm
5. Every partner are agent of the firm every action of the partner in course of the business is binding on all the partners

Types of Partners

1. Active partner-this is a partner who participate actively in the daily activities of the firm,he will be remunerated acting taken is binding on all the partners.
2. General partners-this is a partner who is limited to the share in the administration and management of the firm.
3. Limited partners– this is a partner who have contribute to the firm but cannot take active part in the daily running of the firm,the liability of a limited partner is limited to the amount contributed to the business and it will extend to his personal properties.
4. Dominant(sleeping partner)-this is a partner who contribute financially to the firm but does not take active part in the administration and management of the firm.
5. Nominal partners(quasi)– a nominal partner allow is name to be used by the firm for prestige and reputation purpose,he does not contribute financially nor take active part in the administration and management of the firm.

Right and duties of Partners

1. They will all share from the profit
2. Right to act as an agent of the firm
3. Right to have access to the book of account
4. All decision may be decided by majority of the partners

Advantages of Partnership

1. Partnership business is not mandated by law to publish its annual account is kept secret.
2. Different specialized skills and talent can be brought together in partnership.
3. Sharing ideas and skills will lead to better decision making
4. In partnership business there is division of labor among the partners.
5. Partnership business will continue if one of the partners is not around.

Disadvantages of Partnership

1. The partners are or responsible for the debt of the firm
2. The number of people that can form a partnership is limited twenty in most basis
3. A partnership is not a separate legal entity
4. It is not easy for partner to transfer his ownership to another person
5. Since there is need to consult all the partners before any decision can be taken them ,therefore may be delay.

Sources of Capital to Partnership Business

1. Loan-money can be borrow from financial institution to finance a partnership business
2. Overdraft-the partner may be allowed to overdrawn their account up to an agreed limit
3. Capital contributed by new partners
4. Retained profit
5. Capital contributed by all partners
6. Trade credit-trade credit from suppliers is a major source of finance

Circumstances in which partnership will be illegal

1. Where membership is more than twenty people
2. Where it is formed for illegal purpose
3. Where it is forced for an immoral purpose
4. Where the purpose is contrary to public policy

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