In Nigeria, there have been some improvement in the area of trade and commerce due to improved communication between Nigerian and other countries of the world, as well as between the various towns and villages within the
country. The improvement in the area of communications has led to the formation of partnership to enable Business men to carry out their business more effectively and profitably. Business continues to be largely carried on, however, by individual was enterprises. Of course, each method of carrying on business, whether through a partnership or by an individual, has it’s own merits and demerits.
Meaning Of Partnership
A partnership, as defined by the Uniform Partnership Act, “is an association of two or more persons to carry on as co- owners of a business for profit.” On the other hand, the Partnership Act of 1980 defines partnership as the relationship which subsist between persons called partners, who combine their resources together to carry on certain business with a view to sharing in the profits, and losses, if any.
The formation of a partnership is a convenient method of expanding the scope of a business, since by this means the capital may be increased and the management of a business may be specialized. In addition, it is also being formed in order to overcome the possible disadvantages facing a sole proprietorship. The partnership, just as the sole proprietorship, has not proved to be suited for large business because it’s main objective is to meet the immediate needs of people. No partnership consisting of more than twenty persons can be formed to carry on any business for gain without being registered as a company. In the case of banking, the number must not exceed ten. However, exception to this is granted by the Companies Act of 1968 to Accountants, Solicitors, Stock-broker and Stock-jobbers where larger amounts of capital are required, and these professions may have as many partners as are necessary.
A Partnership Agreement
The coming together of two or more persons in business to trade as a partnership will certainly entail the drawing up of an agreement. The partnership agreement, which is sometimes, called the partnership deed, or the articles of partnership or a memorandum of partnership. This document sets out in writing the terms of the partnership, and it mainly contains rules and regulations, regarding the conduct and behavior of members. Although this document is not legally essential but it is desirable since disputes arising from partners conduct can easily be settled by referring
to the written agreement from time to time. The partnership agreement varies with the nature of the business, but some common terms appear peculiar to all forms of business are listed below.
1. The name of the firm
2. The date of the contract
3. The names of the partners
4. The nature of the business to be transacted
5. The location of the head office as well as branch offices, if any.
6. The duties, obligations and restrictions of partners
7. Whether or not profits and losses shall be shared equally
8. The length of life of the partnership agreement
9. The investment made by each partner.
10. The rate of interest, if any, payable on capital.
11. Whether or not salaries and wages shall be paid to partners.
12. The amount to be paid to partners who retired, and how this amount shall be calculated.
13. The manner in which the account are to be kept and audited.
14. A statement of procedure on the admission of a new partner.
15. The terms and conditions applicable in the event of dissolution of the partnership.
16. The division of distribute-able profits and determination of the amount to be distributed.
17. That In the event of death of a partner, whether his capital shall remain in the business as a loan bearing interest, and be repayable by installment, so as to prevent the business being crippled by a large withdrawal of funds, et cetera.
18. Method of resolving disputes, e.g, by a simple majority vote.
Because the partnership is a voluntary association of individuals, each partner usually contributes capital, labour, skill, et cetera to the firm. As one has said above, an agreement must be reached regarding such items as the investment to be made by each member, the division of future profits, et cetera. Such agreement may be oral, written, or implied by actions of the parties although it is preferable that the agreement be in writing to avoid misunderstanding.
Legal Status Of A Partnership
Unlike the limited liability companies, a partnership is not a legal entity, except, or course, in Scotland. A partnership is not recognized as a person in law, but it is regarded as an association of individuals. According to Pitfield (1977:12), a partnership has the following consequences
1. The firm cannot Sue or be sued in it’s own name. Any legal action must be taken by or against any or all of the partners.
2. It cannot contract in it’s own name
3. On the withdrawal of any partner, voluntarily or upon death, or upon the bankruptcy of any partner, the partnership is terminated.
4. In the event of insolvency of the business, any or all the partners can be held liable to contribute to the deficiency from his private estate.
5. Any partner acting within an apparent authority as a representative of the business, binds each of his partners
6. A partner may not transfer his share of the Business without the consent of his fellow- partners
7. In the event of insolvency of a partnership, a partner may not prove against the firm in competition with outside creditors.
8. The principle of a limited liability does not apply to a partnership except the limited ones.
Features Of A Partnership
The features of a partnership form of business are as follows.
1. It is based on a legal agreement or contact between the partners.
2. It operates under the laws of the land to protect both the partners and persons associated with the business
3. Partners participate equally in the formulation of policies, control management of the film
4. As usual, decision are based on the majority vote of partners.
5. Partners are joint owners and share in profits according to the
6. Each partner is responsible for the things done or promised by any other business.
7. Each partner is legally liability for the total debt of the partnership regardless of his share in the investment.
8. A partnership is terminated automatically upon the death, retirement or resignation of a partner.
9. Partnership makes it feasible to combine the abilities of partners for better management (Osuala. 1982:5)
Rights And Duties Of Partners
The formation of a partnership business cuts across a number of persons with diverse interests. Since they have willingly come together to transact a business for a common objective the purpose of which is to make profits,
it is only proper that right from the inception of the business that individual members get to know their rights and duties in order to avoid conflict.
Frank and Perkin (1982:153) stated that the right and duties of the partners depend on the terms of the partnership agreement. Failing to abide in the absence of an agreement, will be as the right and duties specified in section 24 of the Partnership Act of 1890, namely
1. All partners are entitled to share equally in the capital and the profits of the business, and they contribute equally to losses. The fact that a partner has in fact been drawing a larger than proportionate share of the profits would be taken as evidence of an agreement to that effect.
2. No partner is entitled to interest on his capital contribution prior to the ascertainment of profits
3. No partner is entitled to remuneration for acting in the partnership business.
Every partners, in the absence of an agreement to the contrary, may take part in the management of the affairs of the partnership.
4. No one can be introduced as partner without the consent of all the existing partners
5. Difference as to the day-to-day running of the partnership business are resolved by a majority vote of the partners, but no fundamental change in the business may be made without the consent of all the partners.
6. A partner making a contribution is entitled to receive five percent interest on it.
7. The partnership book must be kept at the main place of business of the partnership, and every partnership, and every partner has a right of access of them.
8. Where a partner has incurred any expense on behalf of the partnership, he is entitled to be indemnified out of the partnership property
Termination Or Dissolution Of A Partnership
A partnership may be dissolved or come to an end in the following ways:
1. Where the partnership has been entered into for a fixed term, it will be dissolved when that term has expired.
2. Where the partnership has been entered into for an indefinite period of time the partnership is a partnership at will, and may be dissolved by either partner giving notice to the others. No particular form of notice is required, except that where the partnership has been made by deed, a written notice will be required.
3. The death or bankruptcy of any of the partners will bring the partnership to an end, but the remaining partners may at once agree to enter into a new Partnership Agreement.
4. Where an event takes place which would render the partnership illegal, the partnership will be dissolve at once.
5. The court may dissolved a partnership on the application of one of the partners in any of the following cases:
When a partner is lunatic, or is, to the satisfaction of the court of permanently unsound mind.
When a partner becomes in any other way permanently incapable of performing his duties under the partnership agreement.
When a partner has been guilty of conduct calculated prejudicial to affect the carrying on of the partnership business.
When a partner willfully or persistently commits a breach of the partnership agreement, or other wise so conducts himself that it is not reasonable practicable for the other partners to carry on the business
Partnership with him
When the business of the partnership can only be carried on at a loss
Whenever the court thinks it just equitable to dissolve the partnership (Frank, et al 1982)
Types of partnership
There are two types of partnership. These are
1. Ordinary or General partnership
2. Limited partnership
The Ordinary partnership
The Ordinary partnership is that in which all the partners have equal power and responsibilities. For insurance, in this type business, each active partner may take part in the management of the business, and each partner, no matter his/her investment in the business, is liable for the debt of the film. As a rule, in ordinary partnership, all partners work towards the realization of the goals of the business. In other words, each ordinary partner is liable for all the debts of the film. His liability is not limited to his capital invested in the firm, but may include his personal
possessions. A creditor may, therefore, Sue the firm as a whole, or anyone of the partners or the money due to him. Each ordinary partner may act as an agent of the firm and may bind the partnership in any contract made on
behalf of the firm. Specialization of management becomes possible, and a partner can be responsible for a department or branch of the firm.
The Limited Partnership.
This was set up by the Limited Partnership Act 1907, with a view to setting up a halfway-house between ordinary partnership and limited companies. As it happened, they never took the fancy of businessmen and a very few of
them exist at the present times.A limited partnership is defined as a partnership consisting of not more than twenty persons, and which must have one or more persons called general or ordinary partners who shall be liable fo all debts and obligations of the firm; and
or more persons to be called limited partners who shall at time of entering such partnership contribute thereto sum of capital or property valued at a stated amount, who shall not be liable for debts or obligations of the firm
amount contributed. In this case, it is important to learn that the liabilities of limited partners are highly restricted up to the amount of capital they have invested the businessman to the above,In addition to the above, the rights and powers of limited partners are Oalso restricted. Although limited partners’ right are restricted, partners may be
allowed to inspect the records maintained by the firm, and if possible, offer advice the ordinary or general partners; but they may not take part in the organisation and management or withdraw any part of their capital.
REGISTRATION OF LIMITED PARTNERSHIPS
Every limited partnership must be registered and, in default, the limited partnership is deemed to be a general partnership and every limited partner becomes general partner. Before a limited partnership is registered, a statement signed by all partners containing the following will be delivered to the Registrar of Companies.
1.The firm’s name
2.The general nature of the business.
3. The principal place of the business.
4. The full names of each of the partners.
5, The term, if any, for which the partnership is entered into and the date of its commencement.
A statement that the partnership is limited and the description of every limited partner, and The sum contribute the sum contributed by each limited partner and whether paid in cash or otherwise. If there is any change during the existence of a limited partnership, a statement writing signed by the firm specifying the nature of the change must be sent by post or delivered to the Registrar within seven day. Also, notice of a change in Status from being a general partner to a limited partner must be publicized.
CLASSIFICATION OF PARTNERS
Partners duties and obligations may differ with respect to such factors as management practice, sharing of profits and extent of liability. Although there are many variations, the following list describes the most important type
1. General or Ordinary Partner: This is a partner who has unlimited liability and may be called upon to furnish additional money from his own personal pay the debts of the partnership. He can enter into contracts in these
act or the firm and is known to be an owner by these outside the partnership.
2. Limited or Special Partner: The liability of a limited partner in this type of business is extended up to the amount of his investment, and he is not permitted to take an active part in the management of the firm.
3. Dormant or Sleeping Partner: This is a partner who has contributed capital to the growth of the business. However, Such partner does not take part in the organisation and management of the business. Because of his role, he is in the not known to the public as a business partner. Although he does not take the organisation of the business, suffice it to say that in the event of part in of bankruptcy Such members are liable to the tune of the money he has so contributed to the business.
4. Nominal Partner: This is a partner who neither contributed money to the business not does he assume any responsibility in the business. He may, not be known to the public. Such partner has only allowed his name to or be
used in the running of the firm; a strategy which, it is believed, will lead to the successful realization of business goals. People who can be approached for the use of their names include successful businessmen, politicians,
professionals, et cetera. They share in the profits of the business, and they could be joined to settle debts if the firm goes into liquidation.
5. A Secret Partner: He does take an active role in the partnership affairs, but is not known to the public as a member of the firm. The role of the secret partner appeals to people who wish to have a part in the management and
decision making process of the business but do not Wish to be known as a partner in the firm.
6. A Silent Partner: He does not take an active role in the business, but is known to the public as a member of the partnership.
7. Senior Partner: He is general partner who receives a larger percentage of the profits, assumes a major role in the management of the firm, and who has a substantial investment in the partnership.
8. Junior Partner: This is a partner who was recently admitted to the partners’status with relatively minor investment and a minor share of the profits.
9. Quasi Partner: This is partner who has retired from active participation in the business, but has left his capital in it as a loan, receiving interest on it varying with the profits, or who incurs liabilities as if he was partner by
reason of the fact that he holds himself out or allows himself to be represented.This is also called a partner by estoppel.
ADVANTAGES OF PARTNERSHIP
Some of the advantages of partnership are:
a. Ease of Organisation: Although more difficult to organised than the sole proprietorship, all that is essentially needed in the partnership is an agreement between the partners. While it is desirable that articles of co-partnership be prepared in writing with legal assistance, this is not mandatory, and an oral contract would be acceptable. The dissolution of the partnership is also a simple matter.
b. Employment Incentive: Unlike the sole proprietorship, a talented or loyal employee can be made a partner, thus providing the incentive for better.
c. Ease in Sourcing Capital: The partnership form of ownership has more than one owner thereby providing more sources of funds than the sole proprietorship.It should also be noted that banks are more willing to lend money when two or more people are responsible for the repayment of the borrowed capital.
d. Ease of Expansion: Since there is a greater amount of working capital, the partnership can expand more readily than the sole proprietorship. Also to be considered is the fact that multiple owners can supervise more employees and larger facilities than could a single individual. Better Credit Standing: The partnership usually enjoys the highest credit as compared with the sole proprietorship. The reason for this is obvious. In the partnership, there are two or more owners combining their personal assets and attract credit facilities.
f. Management benefits: Because there are always, at least, two partners, no one individual is forced to handle all the diversified activities. Each partner
(within the firm), sales (outside the firm), etc. this pooling of talent is of tremendous value to the business as it enables the partnership operate with a variety of specialists. Freedom from Tax: There are no specific taxes levied against the general partnership’s business income. Just as in the sole proprietorship, the partners are taxed as individuals and no double taxation, as found in the corporate form of business.
h. Joint Consultation: Decisions may be made by taking account of viewpoints of others.
i. Specialization of Duties. Each partner may specialize in his duties by employing any particular expertise that he may have.
j. Sharing of Losses: In the event of insolvency, losses would be shared equally among the partners.
k. Personal Interest is Enhanced: A sense of responsibility to those with whom he is closely associated enhances the personal interest of the partner. Since each general partner is liable for the actions of the other partners as
well as his own, he is intimately concerned in every move made by the business.
I. Individual Rights are Protected; There are an established clear-cut answers to the questions of rights, powers, liabilities and duties of partners.
DISADVANTAGES OF PARTNERSHIP
Below are a few of the disadvantages of partnership
a. Unlimited liability: If the assets of the partnership are not sufficient its obligations, the creditors may choose to sue any or all of the satisfy the debt Not only are partners liable for debts incurred decisions, they are also liable for any debts made by a partner when the time. This poses a serious handicap for the individual partner with Nationals assets as he may find himself obligated to repay the entire partnership from his personal assets
b. Complicated Decision Making: Because the partnership deals with more individuals, decision making takes longer to be reached, and statement should occur on a vital decision, the only solution to the problem may be to dissolve the partnership Besides, joint decision-making is on difficult and time consuming Inaction may result from personal altered between or among partners
c. Lack or Continuity: The partnership is a temporary form of business and a be terminated by the partners themselves, by court, decree, or in the event the death, bankruptcy, or insanity of any partner. Therefore, it is obvious that the more people involved in the firm, the greater the chances of dissolution causing the partnership to be the least permanent form of the three types business ownership
d. Agency: A partner may bind his fellows to a contact without their knowledge or consent
e. Divided Authority: Under a partnership agreement, there is always Question of who is the boss in areas such as company’s overall policies financial plans or personnel management, no one partner can make it decision
f. Personal liability for loans: Any loans to the business would made to the partners as individuals
g. Problems of disturbing the partnership: The introduction may disturb the previously-existing person
partnership was a family business
h. Dissolution Problems: Withdrawal of a partner will result in dissolution of the partnership with a liability to repay capital and partner or his executor or his estate.
i Danger of disagreement: The ever present possibility of partner can be very serious. Even though there may be
partnership agreement in writing its details may be interpretations by the numerous members of the firm
j. Difficulty of Management: Although better decisions collective judgement of two or more partners, such share control can also cause trouble. Furthermore, although any partnership is qualified to take action that is legally binding on the partnership, he may be unwilling to do so on important matters. .
kSize of the Firm is Usually Limited: A partnership even if made up of several wealthy individuals would have great difficulty in raising adequate capital for organizing a successful firm in various lines of business unless it! becomes an incorporated entity,
i. Tied up Investment: The partnership is a poor choice for a person who wished to invest some money in a business. It is easy to invest in a partnership and difficult to withdraw the funds. Ifa partner withdraws or dies, the
existing firm is dissolved. It is often very difficult to arrive at a fair price in the event that the remaining partners demonstrate interest in buying the vacated interest.
Sources of Capital
The need for additional capital may be permanent or temporary. Where the recruitment is temporary or permanent, the partners may resort to :
i. Borrow money: They could borrow the money from the banks, but would have then to secure it by pledging assets of the firm. They would also be creating a liability and eventually will have to pay the debt back with interest
ii. Accept another partner: They could accept another partner in the firm, thereby creating no liability but forcing them to share their profits among three people rather than two. They would also have to divide their power.
iii. Accept a limit partner: The acceptance of a limit partner would provide the capital needed and would give the limited partner a normal return without his accepting any liability for debts beyond the amount of his
investment. The partnership would not have to share in the profits of the business with him nor give up voting rights and powers.
Firm and Firm Name
Persons who have entered into partnership with another are, for the purpose of the partnership Act 1890, called collectively a firm, and the name under which their business is carried on is called the firm-name.
A syndicate is an association of two or more individuals formed for a particular financial transaction. It differs from the joint venture in that the activity must be specifically financial and the syndicate is not terminated after
the purpose is completed. A member can sell his interest in the syndicate to another individual who then assumes the risks and obligations of the former owner.
Finally, one should not be confused with the word ‘Partnership and a ‘Firm’. A partnership business is called a firm, and a firm has been defined as an unincorporated body of two or more individuals who have entered into
partnership with one another with a view to carrying on business for profit.
In a nutshell, we have learnt that: a partnership is a kind of business in which there must be at least, between two to twenty members for ordinary business and between two to ten the business is formed for the purpose of carrying out banking services
The maximum number may be increased if the business to be formed
involved certain professional bodies like the Accountants. Solicitors, Stock
brokers, Stock-jobbers, etc.
The partnership agreement is a document in form of rules and regulation
guiding the internal administration of the business.
The document contains essentially those things that may occur among
member during the course of the business.
Partnership is not a legal entity because it is an unincorporated, loose
association of individuals.
The rights and duties of partners are well specified in the document guiding
Partnership can be dissolved on specific grounds.
There are two types of partnerships- the ordinary or general and the
Limited partnership is registered like the limited com
some documents must be sent or delivered to the Registrar before it can be so registered.
Partners are classified on the basis of their contribution participation in the business activities.
A partnership is called a firm, and a firm b unincorporated body of two or more individuals
A syndicate is an association of two or more individual particular financial transaction.
If the partners do not draw up a partnership agreement, the pa
Act 1890, lays down their rights and duties states that entitled to share profits and losses equally.
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