Form of Business Organization II

Partnership

The other form of organization is the Partnership Organization. In the individual ownership, there are certain limitations such as it cannot expand beyond certain limits, because of limited capital investment, etc. As a result, the partnership form of organization has come into existence. In this form, two or more persons come together and start their business with their own funds. They agree to share the profits as well as bear the losses in the agreed proportion. This form of organization is suitable particularly for medium-scale undertakings. Its greatest advantage is that it has larger amounts of capital resources at its disposal and its chances of expansion are also bright. In some cases, a partner may simply contribute his technical or business ability. It is also not necessary that all partners should share the profits and losses in the same proportion. The conditions agreed upon on formation, can be changed with the common consent of all the partners. There are no government restrictions, as long as the activities of the concerned organization are within the legal framework. However, inspite of these advantages, partners are seldom found to work in close harmony. Selfishness and the tendency to grab the maximum profit by doing the minimum work, ultimately results in a failure of any such organization.

Partnership Deed:

When an individual owner cannot collect sufficient capital required for investment, he goes in for a partnership organization. In this form, two or more persons come together and start their business with their own funds. They agree to share profits as well as bear the losses in the agreed proportion. This form of business organization is suitable particularly for medium scale/size undertakings.

Partnership organization can be formed either by a verbal agreement or by a written agreement. To avoid any future complications, confusion or conflicts between partners. Such a written agreement between the partners is known as a ‘Partnership Deed’.

The Partnership Deed contains the following details:

·        Name of the firm

·        Nature of business

·        Date of starting the partnership firm

·        Duration of partnership

·        The amount of capital shared by each partner

·        Share of profits and loss of each partner

·        Allotment of functions to each partner

·        Method of keeping accounts

·        Salary allowed for management partners

·        The basis for the inclusion or removal of a partner

Advantages of a Partnership Organization

• No intricate and lengthy legal formalities are required to be followed to form such an organization.

• Less expenditure is involved in the formation of a partnership organization.

• Compared to individual ownership concern, the partnership organization have larger financial resources at their disposal.

• Greater personal contracts of the partners bring large benefits as well as goodwill to the organization.

• There is enough freedom as there are no restrictions imposed on it by the government.

• Persons of different skills and abilities can come together and their experience in the various fields can be utilized for the betterment of the management.

• Business can be taken up on a large and economical scale by utilizing specialized labour and machinery and the larger profits can be obtained.

• The parameters can take quick decisions.

•  The partnership organization is elastic and efficient. If all members can work in close co-operation, it is certain better than the individual ownership concern

Disadvantage of a Partnership Organization

• Partnership organization are generally short-lived due to the selfish attitudes of partners.

•  In the case of loss, each partner blames the other.

• Partnership organization get dissolved in the case of retirement or death of a partner.

• The existence of this form of organization is not perpetual.

• In this form of organization, the liability is also unlimited.

• The collection of capital is comparatively less than that of a Joint Stock Company.

• Misunderstanding and distrust among the partners may cause the failure of the organization.

• It cannot meet the requirements of modern trade and industry.

The partnership organization is, however, suitable for medium size undertakings like construction, manufacturing furniture, hosiery industry, flour mills, ice factories, sports goods etc.

Kinds of Partnership Organizations:

·        Active Partners:

They are the partners who take active part in the management of the business and look after the day to day working of the organization.

·        Sleeping Partners:

They are the partners who do not take active part in the day-to-day working of the organization.

All the partners, active or sleeping, are responsible for the losses of the organization.

Types of Partnership:

·        General Partnership

In this type of partnership organization, any act performed by one partner effects the whole organization. This mean that the act of one partner affects the other partner also. This type of partnership is useful for small construction engineering firms and for retail trades.

·        Limited Partnership

In this type of partnership organization, the liabilities of the partners are limited to the extent of their investment. They share the profit, but they do not participate in the management of the firm.