In this blog Post, I will be writing on Types of partnership in Commerce with features, advantages and Disadvantages.
Table Of Contents
- Types of Partnership
- Features of partnership
- Advantages of partnership
- Disadvantages of partnership
There are two types of partnership
1. Limited partnership: Limited partnership is a types of partnership which is formed and registered under the limited partnership act. In limited types of partnership, their must be one general partner with unlimited liability and one limited partner whose liability is limited to the amount invested. The partners cannot take equal parts in management and administration of the business. The limited partner can have access to their amount of the partnership.
The features of limited partnership are:
- A limited personal cannot participate in the management of the business.
- Liability is limited but there must be a partner with unlimited liability.
- It must be registered.
2. General or ordinary partnership: In general or ordinary types of partnership, partners have equal responsibility and risk in the business. All partners are agents of the firm and they all shared the responsibility of running the Business of the debts of the firm. Liability of members is unlimited; they all active part in the administration of the management.
The features of general partnership includes
- All the partners have unlimited liability
- Partners are agent of the firm.
- They have equal responsibility in management
- They have equal power in binding the contract.
ADVANTAGES OF PARTNERSHIP
- Sufficient capital: partnership has more financial resources than a sole proprietorship because more people are involved, hence more capital can be raised through partners contribution.
- Increase in Production: There is increase in production as a result of increase in capital and management.
- Joint decision making: Better result are derived when two or more partners put their heads together and take joint decision for the Enterprise.
- There is privacy: In this kind of business unit, there is privacy because partners are not legally compared to publish the annual account for public consumption.
- Better management is another advantages of partnership. By combining the skills and abilities, partnership businesses are usually better managed than a one man business.
- Sharing of risk and liabilities: The partners can share risk and liabilities among themselves and this will reduce individual burden.
- Better chance of continuity: Continuity is another advantages of partnership. There is better chance for continuity because the death or exit of a partner may not lead to the end of a business.
- No legal formalities required: In forming a partnership, no major procedure of establishment is required, unlike a company.
- Increase efficiency: This is another advantages of partnership. The bringing together of special skills and talents help to increase efficiency in production.
- Specialization in management: The principle of division of labor can be applied in this managerial and administrative hierarchy of the business. For example, in an accounting firm, some accountants may be management accountants while others may be specialized in auditing or taxation.
- Greater possibility of expansion: This is another advantages of partnership because there is a possibility of expansion, by making use of additional capital derived from incoming partners.
- Loan facilities: A partnership can easily obtain loan from creditors since they are jointly liable. The loan can be used for the expansion of the business.
DISADVANTAGES OF PARTNERSHIP
The following are the disadvantages of partnership in Commerce:
- Unlimited liability: The partners are liable for the debts of the partnership business up to the full extent of their estate.
- Inability to raise up sufficient capital: This is another disadvantages of partnership, partners cannot invite the public to raise capital. Members of the public are always afraid to invest because of its unlimited liability.
- It is not a legal entity: Partnership business is not a separate and distinct personality. It cannot Sue and be sued in its own name.
- Difficulty in management: Here is another disadvantages of partnership since all partners will want to contribute his own quota, decision-making may be slow and long.
- Risk of dissolution: Death, insanity and bankruptcy of a partner will bring the business to an up abrupt end.
- Limited growth: Limited growth is another disadvantages of partnership. The growth of partnership will be limited to the managerial ability of the partners.
- Disagreement between partners can end the business: There is possibility that a minor disagreement between the partners can bring the business to an end.
- Action of one partner is binding on others: There is an inherent danger that one partner through his recklessness can put others into problem, and this may destroy the business. All the partners will be held responsible for the action of one of the partners in the course of running the firm’s business.
Revision Questions
- What are the two types of partnership?
- Write the features of partnership
- What are the Advantages and Disadvantages of partnership?