Kinds And Formation Of Partnership, Provisions, Conditions

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Hello welcome to this class on kinds and formations of partnership in commerce. Kinds of partners, formation of partnership, provisions and conditions.

Table Of Contents

  1. Kinds of partners
  2. Rights of partners
  3. Formation partnership
  4. Provisions in partnership deeds.
  5. Conditions suitable for formation of partnership

KINDS OF PARTNERS

The various kinds of partners are: limited partners, general partner, sleeping partner active partner, and nominal partner.

  1. Limited partners: A limited partner is the one who has agreed to contribute a certain sum to a partnership business and is prevented by law from taking any active part in the management and administration of the business. He is liable for debts and obligations of the partnership only up to the amount of capital he has contributed. The limited partner has limited liability.
  2. General partners: These kinds of partners has full power of participating in the conduct and management of the partnership business. He is entitled to take full share in the management of the firm. This kind of partner is liable to the full extent of his estate for the partnership debts, i.e, he has unlimited liability.
  3. Active partner: An active partner takes active parts in the management and administration of a partnership business. He contributes to the financing and Formation of the business, takes active role in The day-to-day running of the firm and is being paid a certain sum as salary.
  4. Nominal or quasi partner: A nominal partner contributes only his name to the formation of the business. He neither contributes capital nor take part in the management of the firm. Nominal partner must be a distinguished personality within the community as his name must surely increase the reputation and possibly the Goodwill of the partnership business. This partner will share in the profit or debts of the firm as specified in the partnership act 1890. He might be a politician or a successful businessman.
  5. Sleeping or dormant partner: A dormant partner takes no part in the conduct and management of the partnership business. He will contribute capital and share from the profit but will not engage in the day-to-day running of the firm, i.e, no active participation in the firm. A sleeping partner receives no salary but is liable for the debts of the firm. The mere fact that a partner is a dormant partner does not exonerate him from liability in the event of wrong decision by the active partners.

RIGHTS OF PARTNERS

  1. The partners are entitled to share from the profit of the partnership business.
  2. They must be indemnified by the firm in respect of payment made and personal liabilities in cured by them in the conduct of the business.
  3. A partner making advance beyond the amount of capital which he has agreed to subscribe is entitled to interest on 5%.
  4. A partner has the right to act as the agent of the business.
  5. Every partner must have access to the partnership books of accounts.
  6. Every general partner can take part in the management of the partnership.

FORMATION OF PARTNERSHIP

The partnership business may be established without any formality although the partners have certain unavoidable obligations to third parties, they make such agreement between themselves in respect of the internal management of the firm. It is accordingly usual for people entering into partnership to express their intention in a partnership agreement known as DEED of PARTNERSHIP. There are three forms of making or a creating a partnership agreement. They are by Express agreement, by estoppel and by law. Deed of partnership can be defined as a document drawn up to clarify the respective positions of the partners in a business.

The provisions in partnership deeds are as follows:

  • Sharing of profit and loss.
  • Management of their business.
  • Duration of the business.
  • Drawing rights.
  • Capital contribution.
  • Interest payable on loans from members.
  • Procedure in the event of death of a member.
  • Admission of new partners.
  • Remunerations/salaries.
  • The names of the partners.
  • The nature of the business.
  • The name of the firm.
  • The objective of the firm.

Conditions suitable for the formation of partnership

Here we take a look at the conditions suitable for the formation of partnership in commerce:

  1. Partnership is suitable for executing short-term venture.
  2. Partnership is suitable where the ownership and control should not be extended outside the family of Friends.
  3. Partnership is formed where the success of the business requires the skill or knowledge of experience members of the partnership, i.e, solicitors.
  4. Partnership is formed where large amount of capital is not necessary for business as a limited company.
  5. The partners must have contractual capacity.
  6. It must be registered under the registration of business names Cap 171 law of Nigeria, 1958.
  7. There must be an agreement called deed of partnership.

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Revision Questions

  1. What are the kinds of partners in Partnership?.
  2. State the different rights of partners
  3. What are the three forms of formation of partnership?.
  4. List the provisions in the partnership deeds.
  5. What are the conditions suitable for the formation of partnership?
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