An ideal partnership is a word used for a successful business. is a business where all the partners work honestly and for a canon purpose. There is a perfect understanding among them and they work in harmony.
The partners should be able to manage all business activities effectively. There should not be scarcity of funds. All these things are possible only when the choice of partners is correct. A large number of firms have failed because of mistrust and suspicion among partners.
Essentials of an Ideal Partnership
1. Understanding among Partners. There should be a perfect understanding among partners. They should not doubt other. Every partner should try his best to promote a common cause. The partners should be persons who know each other well for fairly a long period.
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2. Good Faith. The partners should have faith in each other. No partner should try to deceive others. They should trust each other and should feel that their interests are common. It is necessary that the number of partners should be less. If their number is more, then there may be suspicion and disharmony among them.
3. Sufficient Capital. The capital requirements of the business should be met timely. Generally long-term funds should be provided by the partners themselves and short-term funds may be arranged from other sources. If the partners are not able to arrange sufficient funds, the continuity of business will be doubtful. There should be some check on personal drawings also.
4. Long Duration. The duration of the partnership should be long so that the business be properly set up. The partners get time to understand each other and can create a team spirit should he a constant endeavor of all the partners to extend the life of partnership and create an atmosphere of mutual faith and understanding.
5. Balance of Skill and Talent. The partners should have an experience of all fields. One should be expert in financing, another in marketing and the third in production. If all are expert in one field only then other functions may be neglected. There should be a balance in skill and talent so that all the functions are properly attended.
6. Written Agreement. The agreement among partners should be in writing. The duties powers of various partners should be clearly defined and should be in writing. This will help avoiding the misunderstanding at a latter date.
7. Registration. Though the registration of a firm is not compulsory but still it should be registered with the Registrar of Firms. An unregistered firm cannot sue outsiders, although the outsiders can sue the firm.
PARTNERSHIP AND CO-OWNERSHIPÂ
Partnership and co-ownership are two different things. The ownership of a property by more than one person is called co-ownership. If two brothers purchase a property collectively, it will he a case of co-ownership. The property will be disposed off with the consent of all the co-owners, Any income arising out of co-ownership is shared by all the co-owners.
The property is not purchased with the object of earning profits. If a building is purchased to let it for rent, then it will be a case of partnership and not of co-ownership. In the co-ownership, there is only a joint ownership without any business motive. In partnership, joint ownership and business are combined.
Distinction between Partnership and Co-ownership
1. Contract. Partnership is based on contractual relationship among partners. Co-ownership may be by the operation of law. On the death of father, sons become co-owners of his property. O the other hand, partnership is the outcome of an agreement.
2. Object. The object of partnership is to enter into some business and earn profits. Co-ownership is not meant for business purposes.
3. Transfer of Interest. No partner can transfer his interest (share) without the consent of all other partners. A co-owner can transfer his interest at any time and without asking from other co-owners.
4. Agency Relationship. Partners can act as agents of the business. They have an implied authority to bind the firm by their acts. No agency relationship exists in co-ownership. Every co-owner is responsible for his own deeds only.
5. Division of Joint Property. A co-owner can demand the division of property. Two co-owners may divide a plot of land by erecting a wall on the land. In partnership, the division of property cannot be demanded. A partner can demand the payment of his share in business by way cash.
6. Right of Investment. If a partner spends some money for the business he can demand its reimbursement. On the other hand, if a co-owner spends money for the improvement of property me cannot claim it as a lien of property.
7. Act. Partnership is formed under Partnership Act, 1932 but there is no such act governing -ownership:
ADVANTAGES OF PARTNERSHIP FORM OF ORGANISATION
Partnership form of organization is suitable for medium size businesses where personal efforts of entrepreneurs are essential. The following are the advantages of partnership:Â
1. Easy to Form. This is a suitable type of organization requiring no legal formalities. No Formal documents are required to be prepared as is necessary in simple agreement among partners is sufficient case of joint stock company. A to start partnership firm. A partnership deed is not necessary though it is advisable to prepare it. Even the registration of firm in optional.
2. Large Resources. The resources of more than one person are available for the business. The partners can contribute to start a moderately large-scale concern. More partners can be added if capital needs are large. The partnership concern can also arrange funds from the outside sources.
3. Greater Managerial Talent. The partners may be assigned duties according to their talent. Different functional departments may be managed and controlled by different partners. The talent, expertise and knowledge of partners in different fields can be used for the welfare of the business. It will help to increase the efficiency of the business resulting in more profits.
4. More Credit-standing. The partners may have sufficient contacts in the market. They can offer more securities to the financial institutions. The liability of partners being unlimited, they will be able to raise more finances. As compared to a sole-trade business, partnership concern has more credit-worthiness.
5. Promptness in Decision-Making. The partners meet frequently and they can take prompt decisions. The firm will not lose any business opportunities because of delay in taking a decision.
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6. Sharing of Risk. The risk of business is shared by more persons. The burden of every partner will be much less as compared to the burden of sole-trade. Furthermore, the business expansion will not be hampered for fear of risk.
7. Relationship between Reward and Work. The partners try to put more labor to earn more and more profits. There is a direct relationship between reward and work. The more they work, the more they be benefited.
8. More Possibility of Growth and Expansion. As compared to a sole-trade business, partnership concern has more possibilities for expansion and growth of business activities. The partner can contribute more and manage the activities more systematically.
9. Close Supervision. The partners themselves look after the business; so they can avoid wastages. They have direct access to the employees and can encourage them for more production. The management of partnership is much cheaper as compared to a joint stock company where experts are paid higher salaries.
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10. Flexibility of Operations. There is no statutory obligation to seek approval from government before making major changes in the business set-up. There can be any change in managerial set-up, capital and scale of operations. These changes can be made easily depending upon the business opportunities.
11. Secrecy. A partnership concern is not expected to publish its profit and loss account and balance sheet as is necessary for a joint stock company. The partners can keep the business secrets to themselves. The competitors don’t know about the exact position of the business. The secrets of business are very for a small concern.
12. Protection of Minority Interests. Every partner bas a right to participate in the management of the business. All important decisions are taken by the consent of all partners. If a majority enforced an minority then effected partners can get the business dissolved.
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13. Esay Dissolution. The partnership can be dissolved in insolvency, lunacy or death of partners. If the partnership is at will, then any partner can get the firm dissolved by giving other partners. No legal formalities are requited at the time of dissolution. So it is easy to start as well as dissolve a partnership concern.
14. Democratic Administration. All partners may take active interest in the working of the firm. All the partners we consulted on important decisions. Generally, strategic decisions are taken by consensus only.
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15. Saving in Managerial Expenses. There are savings in expenses of a partnership The partners divide all important functions among themselves and look after them. In other, forms like Joint stack, company managerial expenses are huge because they have to depend on hired employees
Disadvantages of Partnership
1. Unlimited Liability. The liability of partners is unlimited. They are not only liable for their business investment but their private properties can also be taken for business liabilities Part try to avoid risks and it restricts the expansion and growth of the business.
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2. Limited Resources. There is a limitation in raising additional resources for expansion purposes. The business resources are limited to the personal funds of the partners. Borrowing capacity of the partners is also limited. The number of partners to be added to a business is also limited. A banking company cannot have more than ten partners and in other business the number of part exceed twenty. So, there is a limit beyond which partners cannot be added cannot.
3. Instability. The partnership concern suffers from the uncertainty of duration because it con be dissolved at the time of death, lunacy or insolvency of a partner. The lack of trust among partners can also lead to dissolution. The discontinuity of the business is a social loss and it cause inconvenience to the consumers and workers.
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4. Mutual Distrust. The mutual distrust among partners is the main cause for the dissolution of partnership concern. It is difficult to maintain harmony among partners because they may have different opinions and may not agree on certain matters. Lack of confidence in each other can be cause for quarrels and it may lead to the dissolution of the firm.
5. Limitations on Transfer of Share. No partner can transfer his share to a third party without the consent of the other partners. If a partner wants his share back it will not be possible without approval of other partners or without dissolution of the firm. In case of a company, any shareholder can transfer his shares without affecting the working of the business. In partnership, partners permanently wedded to it.
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6. Burden of Implied Authority. A partner can bind the business by his acts. He can act as an urgent of the business. A dishonest partner may lead the business in difficulties. The other partners will have to meet the obligations incurred by the partner. The provision of implied authority may create problems for the business.
8. Lack of Prompt Decisions: All Important decisions are taken by the consent of partners so decision-making process becomes time consuming. There may be a possibility of losing business opportunities because of slow decision-making. The decisions are generally taken by converses., it may be difficult to convenience all partners for agreeing to a particular decision.Â
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9. Cautious Approach: Unlimited liability of partners leads to cautious approach on the part of partners. They try to avoid decisions where some sort of risk is involved. A number of business opportunities may be lost due to this type type of tendency. Moreover, risk bearing capacity of partners may also be limited.Â
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