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ZIMSEC O Level Commerce Notes: 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.