Partnership Business is a form of business registered in the books of government ,which is carried on by some persons under one name for sharing the profits and with the agreement of participation in the transactions by all partners or a single partner acting to all.
Characteristics of Partnership Business
In case of formation of partnership business there must be the involvement of at least two persons but the maximum number is not mentioned in the partnership act. For the registration of partnership firm it should be registered under the department of industry or commerce of Nepal government.
There must be the mutual agreement among the partners in the partnership firm. The partners go into the agreement that bind them. Partnership deed is determined clearly before the commencement of business but it differs from business to business. This document may be written or oral. But it must be written so that disputes may be settled according to the provisions of agreement.
- Unlimited Liability:
This is the prominent feature of partnership that the liability of each partner is not limited to the amount invested but his private property is also liable to pay the business obligations. If the debts is not cleared through the business the business, then the partner has to bear the losses or debts from their own properties as well.
- Transferability of shares:
There is restriction to transfer share from one partner to another person without the consent of existing partners .So the investment in the partnership remains confined into few hands. One cannot easily transfer his/her share to others without the approval of other remaining partners.
- Mutual Confidence:
The business of the partnership cannot be conducted successfully without the element of mutual confidence and cooperation of partners. So, the members must have trust and confidence in each other.
Each partner contributes his share in the capital according to the agreement. Some persons become partners without investing any capital to the business. But they devote their name, energy and ability to their business instead of capital and receive profit.
- Principal-agent relationship:
This relationship is based on mutual trust and faith among the partners in the interest of the firm. One partner is an agent as well as principal to other partner. He can bind the other person by his act.In the position of an agent he can make contract with another person or parties on behalf of his concerned firm. According to this every partner is an agent when he is working on behalf of other partners and he is the principal when other partners act on his behalf.
- Sharing of profit and loss:
In partnership firm all the profits and losses are shared by the partners in any ratio as agreed. If it is not given then they share it equally. According to agreement made ,the profits and losses are shared accordingly.
- Lack of separate legal entity:
Partnership has no separate legal entity .Therefore , it cannot carry out any transaction like agreement ,contract or business activities on its own name independently. All the partners are individually and collectively responsible for the activities of the firm.
- Joint Management:
Partnership firm can be managed jointly. All the partners have the right to manage the business .However it can also be entrusted to other partner for the management or operation of activities. The partners can become the active partners or sleeping partners on the basis of mutual agreement which is also made on the basis of knowledge ,skills and expertise, time availability and other factors.
Source: Essentials of Finance by KEC publication