Commerce: Partnership Features

• Is formed by written or verbal agreement between partners.
• They are formed by 2-10 partners.
• Professionals such as lawyers, doctors and accountants can form partnerships of 2 to unlimited members as they are not allowed to form limited liability companies.
• Has fewer legal formalities.
• Requires a trading licence.
• Is governed by the Partnership Act or a where it exists a Partnership Deed.
• It is jointly owned and controlled by the partners
• Active partners control the business’s day to day operations.
• Sleeping partners contribute capital only and do not manage the business.
• Decisions made by one partner are binding on all the other partners.
• The liability of the partners is usually unlimited.
• General partners have unlimited liability.
• Limited partners have limited liability.
• Profits and losses are shared either equally or according to the provisions of the Partnership Deed.

Types of partners

Ordinary/General Partnership

• All partners have unlimited liability of the partnership’s debts which means that they can lose their own personal property in settlement of partnership debts.
• Active partners take part in the day to day running of the business.

Limited liability partnership

• Limited liability and sleeping/dormant partners:
• contribute capital only.
• Enjoy limited liability.
• Do not take part in the day to day running of the business.
• The Partnership Act requires that at least one of the partners in a Limited Liability partnership should have unlimited liability:
• The active partner must run the business on a daily basis.
• Bear the unlimited liability.

Sources of capital

• From their own personal savings.
• From family and friends.
• Loans and overdrafts from commercial banks.
• Mortgage loans from Building Societies.
• Retained Earnings.
• Hire Purchase buying.
• Leasing of fixed assets.
• Purchasing goods for resale on credit.

To access more topics go to the Commerce Notes page.