ADVANTAGE OF PARTNERSHIP FIRM

Partnership firm is an association of persons who have agreed to carry on business with a view to make profit. The advantages of partnership firm are given below:

(1) Easy to form and Dissolve : A simple agreement among partners is sufficient to register a partnership. No other formal documents and legal formalities are required. It is equally easy and inexpensive to dissolve a partnership.

(2) More Resources : Partnership is a combination of several persons. So more capitals can be collected and advantages of large scale business may be obtained. More partners can be added if capital needs are large.


(3) Harmonization of Different Abilities : In partnership firm, there is a harmonization of different abilities of different partners. The talent, expertise and knowledge of partners in different fields can be used for the welfare of the business. So, there is more chance for the advancement of business.

(4) Credit Facility : The ability of partners being unlimited they will be able to borrow more capital. As compared to sole trading concern, partnership has more credit worthiness. More securities can be provided by a partnership firm to the finance institutions and other creditors.


(5) Appropriate Decisions : In partners decisions are taken by consensus of all partners. So they take appropriate decisions and there is less chance of incorrectness. Fear of unlimited liability encourages caution and care, thus, puts a brake on hasty and reckless decisions.

(6) More Inspiration : There is more inspiration to work because partners think that the result of their hard work will be rewarded in the form of more profits to them.

(7) Close Supervision : The partners themselves look after the business, so they avoid wastage. They have direct access to employees and can encourage them for more production.

(8) Secrecy : The business affairs and accounts of the partnership do not require publicity by law as in companies. So, partners can keep business secrets within themselves.

(9) Flexible : In partnership firm, there can be any change in managerial set-up, capital, and scale of production. These changes can be made by the mutual agreement between partners. Thus, it enjoys flexibility.

(10) Protection of Minority Interests : Every partner has a right to participate in the management of the business. All important decisions are taken by the consent of all partners. In event of disagreement minority may even Veto a resolution. Hence, it protects the interest of minor partners.

(11) Reduced Risk : The losses incurred by the firm will be shared by all partners. So loss of each partner will be less in comparison to sole trading concern.

B. CHARACTERISTICS OF PATNERSHIP FIRM

The discussion of various definitions of partnership leads to the following characteristics :

(1) Association of Two or More Persons : Partnership is the outcome of a contract, so there must be two or more persons to enter into a contract. An association of two or more persons to enter into a contract. An association of two of more persons will become a partnership only when it is meant to do some business. If the purpose is social service it will not be a partnership. In partnership act, the maximum number of partners is not mentioned.

(2) Agreement : The partnership is set up by an agreement between partners. In the absence of agreement partnership cannot be established. There must be a written agreement which helps to settle the disputes if they occur later.

(3) Principal-Agent Relationship : The business must be carried on by all or one or more acting on behalf of all partners. So every partner is an agent of the firm as well as of the other members. Whether participating in management or not, every partners will be liable for action of each of the other partners in the ordinary course of business. Thus, every partner has a double role—as and agent and principal, at the same time.

(4) Sharing Profit and Loss : The purpose of partnership should be to earn profits and there must be an agreement to share profit and loss. Profit and loss sharing ratio depends on the mutual contract among partners. But if a work is done for charity purposes, it cannot be called partnership.

(5) Unlimited Liability : In partnership, partners have joint and several unlimited liability. So in the first instance, they have to share the loss jointly in profit sharing ratio. But if any or more partners are unable to contribute to their shares of deficiency, the remaining partners have to pay for their shares also.

(6) No Free Transfer of Share : A partner is not permitted to sell or transfer his share to an outsider without the consent of all partners. Partnership share is not a freely transferable asset.

(7) No Legal Status : The partners and the firm are not legally separate. Partnership is purely personal organization it has no separate legal personality.

(8) Registration : The registration of partnership is compulsory unless the firm is registered, it cannot be partnership.

(9) Stability : A partnership is established on the basis of the mutual contract among partners. So, the stability of a partnership is dependent on its contract. If a partner retires or dies, the contract is terminated.

PARTNERSHIP FIRM

A. MEANING OF PARTNERSHIP FIRM

Sole trading concern has limited capital, limited managerial skill, and cannot carry on business on a large scale. So persons generally combine to have enough resources and skill for doing business on a bigger scale. When two of more persons agree to carry on business for their mutual advantage such a business is termed as ' Partnership'. A partnership firm consists of two or more persons who have joined capital and or service to carry on a lawful business with a view to gain profit.

According to Dr.J.A.Shubin :" Two or more individuals may form a partnership by making a written or oral agreement that they will jointly assume full responsibility for the conduct of a business". In other words of Prof. Haney : "Partnership is the relation between persons competent to make contract who agree to carry on a lawful business in common with a view of private gain".

In Nepal formation and management of partnership is governed by the provisions of “Partnership Act, 2020”. Clause 3 of Partnership Act defines partnership as : “Partnership means any business registered in the books of Nepal Government where some persons keeping one name sharing the profit with the agreement to participate all partners for each partner or a partner for all partners in the business”.

In conclusion, we can define partnership firm as an associate of persons who have come together with a view to carryon business in common with a view to make profit. This relation of partnership exists out of contract. Persons who have entered into this relationship or partnership are individually known as ‘partners’ and collectively as ‘firm’. The business is carried on in a particular name called the ‘firm’s name’.

The above definitions clearly bring out the following essential elements, which constitute a partnership firm as a form of business organization:
1. There must be at least two or more persons to form partnership.
2. They carry business with one specific name.
3. There must be agreement between persons desirous of forming partnership.
4. Profit or loss is shared according to the agreement.
5. The business must be managed by all or one or more of them acting for all.
6. The partnership firm should be registered in the books of Nepal Government.