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Introduction to Business

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Introduction to Business ­MGT 211
VU
Lesson 05
PARTNERSHIP AND ITS CHARACTERISTICS
PARTNERSHIP
Partnership is the second stage in the evolution of forms of business organization. It means
the association of two or more persons to carry on as co-owners, i.e. a business for profit. The
persons who constitute this organization are individually termed as partners and collectively
known as firm; and the name under which their business is conducted is called "The Firm
Name".
In ordinary business the number of partners should not exceed 20, but in case of banking
business it must nor exceed 10.  This type of business organization is very popular in
Pakistan.
DEFINITION
1. According to Section 4 of Partnership Act, 1932
"Partnership is the relation between persons who have agreed to share the profits of a
business carried on by all or any of them acting for all."
2. According to Mr. Kent
"A contract of two or more competent persons to place their money, efforts, labour and skills,
some or all of them, in a lawful commerce or business and to divide the profits and bear the
losses in certain proportion."
Structural Diagram:
Association
Profit & Loss
Money, Labour
PARTNERSHIP
And Other Skills
Lawful Business
CHARACTERISTICS
The main characteristics of partnership may be narrated as under:
1. Agreement
Agreement is necessary for partnership. Partnership agreement may be written or oral. It is
better that the agreement is in written form to settle the disputes.
2. Audit
If partnership is not registered, it has no legal entity. So there is no restriction for the audit of
accounts.
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Introduction to Business ­MGT 211
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3. Agent
In partnership every partner acts as an agent of another partner.
4. Business
Partnership is a business unit and a business is always for profit. It must not include club or
charitable trusts, set up for welfare.
5. Cooperation
In partnership mutual cooperation and mutual confidence is an important factor. Partnership
cannot take place with cooperation.
6. Dissolution
Partnership is a temporary form of business.
It is dissolved if a partner leaves, dies or
declared bankrupt.
7. Legal Entity
If partnership is not registered, it has no legal entity. Moreover, partnership has no separate
legal entity from its members and vice versa.
8. Management
In partnership all the partners can take part or participate in the activities of business
management. Sometimes, only a few persons are allowed to manage the business affairs.
9. Number of Partners
In partnership there should be at least two partners. But in ordinary business the partners
must not exceed 20 and in case of banking business it should not exceed 10.
10. Object
Only that business is considered as partnership, which is established to earn profit.
11. Partnership Act
In Pakistan, all partnership businesses are running under Partnership Act, 1932.
12. Payment of Tax
In partnership, every partner pays the tax on his share of profit, personally or individually.
13. Profit and Loss Distribution
The distribution of profit and loss among the partners is done according to their agreement.
14. Registration
Many problems are created in case of unregistered firm.
So, to avoid these problems
partnership firm must be registered.
15. Relationship
Partnership business can be carried on by all partners or any of them can do the business for
all.
16. Share in Capital
According to the agreement, every partner contributes his share of capital. Some partners
provide only skills and ability to become a partner of business and earn profit.
17. Transfer of Rights
In partnership no partner can transfer his shares or rights to another person, without the
consent of all partners.
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Introduction to Business ­MGT 211
VU
18. Unlimited Liability
In partnership the liability of each partner is unlimited. In case of loss, the private property of
the partners is also used up to pay the business debts.
ADVANTAGES AND DISADVANTAGES OF PARTNERSHIP
ADVANTAGES OF PARTNERSHIP
Following are the advantages of partnership:
1. Simplicity in Formation
This type of business of organization can be formed easily without any complex legal
formalities. Two or more persons can start the business at any time. Its registration is also
very easy.
2. Simplicity in Dissolution
Partnership Business can be dissolved at any time because of no legal restrictions.
Its
dissolution is easy as compared to Joint Stock Company.
3. Sufficient Capital
Partnership can collect more capital in the business by the joint efforts of the partners as
compared to sole proprietorship.
4. Skilled Workers
As there is sufficient capital so a firm is in a better position to hire the services of qualified and
skilled workers.
5. Sense of Responsibility
As there is unlimited liability in case of partnership, so every partner performs his duty
honestly.
6. Satisfaction of Partners
In this type of business organization each partner is satisfied with the business because he
can take part in the management of the business.
7. Secrecy
In partnership it is not compulsory to publish the accounts. So, the business secrecy remains
within partners. This factor is very helpful for successful operation of the business.
8. Social Benefit
Two or more partners with their resources can build a strong business. This factor is very
helpful in solving social problems like unemployment.
9. Expansion of Business
In this type of business organization, it is very easy to expand business volume by admitting
new partners and can borrow money easily.
10. Flexibility
It is flexible business and partners can change their business policies with the mutual
consultation at any time.
11. Tax Facility
Every partner pays tax individually. So, a firm is in a better position as compared to Joint
Stock Company.
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Introduction to Business ­MGT 211
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12. Public Factor
Public shows more confidence in partnership as compared to sole proprietorship. If a firm is
registered, people feel no risk in creating relations with such business.
13. Prime Credit Standing
The liabilities of partners are unlimited, so the banks and other financial institutions provide
them credit easily.
14. Minority Protection
In partnership all policy matters are decided with consent of each partner.
This gives
protection to minority partners.
15. Moral Promotion
Partnership is the best business for small investors. It promotes moral courage of partners.
16. Distribution of Work
There is distribution of work among the partners according to their ability and experience. This
increases the efficiency of a firm.
17. Combined Abilities
Every partner possesses different ability, which helps in running the business effectively, when
combined together.
18. Absence of Fraud
In partnership each partner can look after the business activities. He can check the accounts.
So, there is no risk of fraud.
DISADVANTAGES OF PARTNERSHIP
The disadvantages of partnership are enumerated one by one as under:
1. Unlimited Liability
It is the main disadvantage of partnership. It means in case of loss, personal property of the
partners can be sold to pay off the firm's debts.
2. Limited Life of Firm
The life of this type of business organization is very limited. It may come to an end if any
partner dies or new partner enters into business.
3. Limited Capital
No doubt, in partnership, capital, is greater as compared to sole proprietorship, but it is small
as compared to Joint Stock Company. So, a business cannot be expanded on a large scale.
4. Limited Abilities
As financial resources of partnership are limited as compared to Joint Stock Company, so it is
not possible to engage the services of higher technical and qualified persons. This causes the
failure of business, sooner or later.
5. Limited number of Partners
In partnership, the number of partners is limited, so the resources are also limited. That is why
business cannot expand on large scale.
6. Legal Defects
There are no effective rules and regulations to control the partnership activities. So, it cannot
handle large-scale production.
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Introduction to Business ­MGT 211
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7. Lack of Interest
Partners do not take interest in the business activities due to limited share in profit and limited
chances of growth of business.
8. Lack of Public Confidence
As there is no need by law to publish accounts in partnership, so people lose confidence and
avoid dealing and entering into contract with such firm.
9. Lack of Prompt Decision
In partnership all decisions are made by mutual consultation. Sometimes, delay in decisions
becomes the cause of loss.
10. Lack of Secrecy
In case of misunderstandings and disputes among the partners, business secrets can be
revealed.
11. Chances of Dispute among Partners
In partnership there are much chances of dispute among the partners because all the partners
are not of equal mind.
12. Expansion Problem
Partnership business may not be expanded due to limited number of partners, limited capital
and unlimited liability.
13. Frozen Investment
It is easy to invest money in partnership but very difficult to withdraw it.
14. Risk of Loss
There is a risk of loss due to less qualified and less experienced people.
15. Transfer of Rights
In partnership no partner can transfer his share without the consent of all other partners.
CONCLUSION
From the above-mentioned findings, we come to this point that despite the above
disadvantages, partnership is an important from of business organization. This is because its
formation is very easy and due to unlimited liabilities, partners take great interest in business,
because in case of loss they are personally responsible.
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Table of Contents:
  1. INTRODUCTION:CONCEPT OF BUSINESS, KINDS OF INDSTRY, TYPES OF TRADE
  2. ORGANIZATIONAL BOUNDARIES AND ENVIRONMENTS:THE ECONOMIC ENVIRONMENT
  3. BUSINESS ORGANIZATION:Sole Proprietorship, Joint Stock Company, Combination
  4. SOLE PROPRIETORSHIP AND ITS CHARACTERISTICS:ADVANTAGES OF SOLE PROPRIETORSHIP
  5. PARTNERSHIP AND ITS CHARACTERISTICS:ADVANTAGES AND DISADVANTAGES OF PARTNERSHIP
  6. PARTNERSHIP (Continued):KINDS OF PARTNERS, PARTNERSHIP AT WILL
  7. PARTNERSHIP (Continued):PARTNESHIP AGREEMENT, CONCLUSION, DUTIES OF PARTNERS
  8. ORGANIZATIONAL BOUNDARIES AND ENVIRONMENTS:ETHICS IN THE WORKPLACE, SOCIAL RESPONSIBILITY
  9. JOINT STOCK COMPANY:PRIVATE COMPANY, PROMOTION STAGE, INCORPORATION STAGE
  10. LEGAL DOCUMENTS ISSUED BY A COMPANY:MEMORANDUM OF ASSOCIATION, CONTENTS OF ARTICLES
  11. WINDING UP OF COMPANY:VOLUNTARY WIDNIGN UP, KINDS OF SHARE CAPITAL
  12. COOPERATIVE SOCIETY:ADVANTAGES OF COOPERATIVE SOCIETY
  13. WHO ARE MANAGERS?:THE MANAGEMENT PROCESS, BASIC MANAGEMENT SKILLS
  14. HUMAN RESOURCE MANAGEMENT:Human Resource Planning
  15. STAFFING:STAFFING THE ORGANIZATION
  16. STAFF TRAINING & DEVELOPMENT:Typical Topics of Employee Training, Training Methods
  17. BUSINESS MANAGERíS RESPONSIBILITY PROFILE:Accountability, Specific responsibilities
  18. COMPENSATION AND BENEFITS:THE LEGAL CONTEXT OF HR MANAGEMENT, DEALING WITH ORGANIZED LABOR
  19. COMPENSATION AND BENEFITS (Continued):MOTIVATION IN THE WORKPLACE
  20. STRATEGIES FOR ENHANCING JOB SATISFACTION AND MORALE
  21. MANAGERIAL STYLES AND LEADERSHIP:Changing Patterns of Leadership
  22. MARKETING:What Is Marketing?, Marketing: Providing Value and Satisfaction
  23. THE MARKETING ENVIRONMENT:THE MARKETING MIX, Product differentiation
  24. MARKET RESEARCH:Market information, Market Segmentation, Market Trends
  25. MARKET RESEARCH PROCESS:Select the research design, Collecting and analyzing data
  26. MARKETING RESEARCH:Data Warehousing and Data Mining
  27. LEARNING EXPERIENCES OF STUDENTS EARNING LOWER LEVEL CREDIT:Discussion Topics, Market Segmentation
  28. UNDERSTANDING CONSUMER BEHAVIOR:The Consumer Buying Process
  29. THE DISTRIBUTION MIX:Intermediaries and Distribution Channels, Distribution of Business Products
  30. PHYSICAL DISTRIBUTION:Transportation Operations, Distribution as a Marketing Strategy
  31. PROMOTION:Information and Exchange Values, Promotional Strategies
  32. ADVERTISING PROMOTION:Advertising Strategies, Advertising Media
  33. PERSONAL SELLING:Personal Selling Situations, The Personal Selling Process
  34. SALES PROMOTIONS:Publicity and Public Relations, Promotional Practices in Small Business
  35. THE PRODUCTIVITY:Responding to the Productivity Challenge, Domestic Productivity
  36. THE PLANNING PROCESS:Strengths, Weaknesses, Threats
  37. TOTAL QUALITY MANAGEMENT:Planning for Quality, Controlling for Quality
  38. TOTAL QUALITY MANAGEMENT (continued):Tools for Total Quality Management
  39. TOTAL QUALITY MANAGEMENT (continued):Process Re-engineering, Emphasizing Quality of Work Life
  40. BUSINESS IN DIGITAL AGE:Types of Information Systems, Telecommunications and Networks
  41. NON-VERBAL COMMUNICATION MODES:Body Movement, Facial Expressions
  42. BUSINESS ORGANIZATIONS:Organization as a System
  43. ACCOUNTING:Accounting Information System, Financial versus Managerial Accounting
  44. TOOLS OF THE ACCOUNTING TRADE:Double-Entry Accounting, Assets
  45. FINANCIAL MANAGEMENT:The Role of the Financial Manager, Short-Term (Operating) Expenditures