The Problem Of Partnership Business In Nigeria

THE PROBLEM OF PARTNERSHIP BUSINESS IN NIGERIA (A CASE STUDY OF ESCO AND CO, WARRI DELTA STATE)

In the past many writers have dealt electively in writing on the business accounting, economic, purchasing and supply have dwelt more on partnership as a form of business. This chapter happens to gather there idea to enable every reader of this work to have background knowledge of partnership business fro what it entails.

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For convenience and to ensure that important facts in partnership have been discussed. This chapter has been divided into two parts. Namely, general nature of partnership and type of partners and ranks and formation and modes of operation.

Part one, the general nature of partnership business considering the historical background of the topic and define the terms of reference stating the essential factor, the relevance laws in partnership. Kinds of partnership with reference to limited par5tnership die to its unchecked nature and the entity concept. It closes wit the consideration of characteristics of partnership business.

 

The second part reviews the formation and operation of partnership business. It considers the formation procedure and (if any) a content of the partnership deed. More also it is not the coming together of people that Is in partnership, but also test the existence of partnership. Other areas of importance, which the partnership cover is, the areas of operation, which unveils such areas of power and liability as partners and its limitation and liability, are considered. This is a fact that must be disclosed in the partnership business. The maximum number of persons that must be in it is from two (2) to twenty (20) persons. But fir some specific business like in the banking sector, the maximum is 10 while in other venture like in the accounting sector, group of solicitor, estate ventures cold be up to twenty. They could be more than that for professional qualified bodies..

Under normal condition if they are more than twenty (20), they must register as a company under company an Allied matter decree (1999) CAMD. This registration restriction does not apply when it come to professional bodies like the accountant and the legal practitioners (section 19 (2) CAMD 1990)

 

He members that formed partnership are called the partners and there partnership is known as a firm. Partnership name thrives around the good names of their senior of their partners and member example the Garri and Co, Rotimi Williams Firm of chattered accountants etc.

In view of this before partnership business can exist, the following condition must be met;

  1. The business must be carried in common for the benefit of all the partners
  2. Two person must come together les it will called the sole proprietorship
  3. The ultimate aim which is profit making must be considered.

 

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In the material periods, there are two type of partnership, namely – commerce and society. The commence is a limited partnership in which the financier will come together for a merchant of a specific business like an expenditure venture. The financiers provide the cash but take no part in the management. The profit will be shown at the end of the business been the different between the expenditure and the income. a good example is the era of Macco Pollo who tried to establish a trade rout to the far east. A common contract within this time will involve a loss to the merchant adventure. The merchant took an active role bearing all the physical and emotional risk upon the successful completion of every journey. The capitalist take most of the profit up to (75%) while the merchant is left with only 25% of the profit. the society was in more less general partnership form of business in which the individual take part in the completed venture and shear the return on an agreed formular. This become more popular is that need arise to raise more capital for business ventures.

Partnership business on this part will not be completed if the issue of addition, amalgamation, retirement and dissolution of the partnership business, all this should be considered on the cost of writing the partnership deed.

 

THE GENERAL NATURE OF PARTNERSHIP BUSINESS

From the definition and the historical background of partnership of the earliest record in one of the most well organized body of business entity which start from members of the same family according to the Babylonian banking house. The business of partnership is carried out based on define responsibility, individual based on his specialized field of undertaking. Though most of them commence usually for a short period of time or on a specific expenditure. Profit were also calculated at the end of the venture and was sheared according to the agreed formular.. from the onset, partnership business has maintain a culture of intimacy with management and check and balance up till date.

 

HISTORICAL VIEW OF PARTNERSHIP BUSINESS

The record for the past in partnership business was traced back to the Babylonian banking house of Egib, commonly referred to as the family business. The family partner lasted longer than that of the Golden |Empire 9 (539 – 606 BC), partnership as referred to in the Roman Empire and their laws. The merchant of the Middle Ages, particularly those of the Italian city-states, wildly employed them.

In this modern age, partnership business operates in a wider range. It is been organized form the small scale selling and the service at a particular location to a large-scale enterprise with series of branches all over the nation. Within this spectrum, we have the accounting group, insurance group, and brokerage firm with office throughout the nation.

Partnership is the relationship of a voluntary contract between parties that may be oral or written or applied from the act partnership deed (Simon 1968)

In Nigerian, certain laws guides the operation of partnership business which we shall consider at a clear definition of partnership

 

DEFINITION OF PARTNERSHIP

The term partnerships ahs been define in various point of this writing, some of this definition is stated below

  1. As a relationship that between two or more persons contribute skill, money in order to establish, own and manage business organization with the sole aim of making profit. (J.U Aynaede 1990). A partnership is a relationship which requires the utmost trust and co-operation between the partners
  2. It is a business relationship that is own and manage by two or more persons
  3. There main objective is to make profit which has to be shared in the same percentage of contribution among the partnership members
  4. There must be a business for which they a coming together either by vacation or profession.

 

From the above mention fact, the profit shearing which the vital evidence of partnership business determine the existence of partnership business firm and also the receiving of the profit as a member of the partnership firm

 

 TYPE OF PARTNERS

Various writers have classified partners but an attempt made by JU Anyeele (1990) is mainly considered in this research as follows;

 

  1. Active or general partnership: As the name implies, it is the partner who take active impact in the formation, financing and management of the business. If agreed upon, salary is paid to the active partners.
  2. Sleeping of dormant partners: these partners only contribute part of the capital used in the formation and running of the business but dose not take part in the management of the business. They take part in the shearing of the profit and loss as specified in the partnership deed
  3. Normal or passive partners: this partner exists only in name and in words because he contributes noting to the business but his name in the formation of the business. Partners of this nature are only men and women for substance.
  4. Special or limited partners: these partners are limited only to the amount of capital, which he contributed, or agree to contribute.

 

KINDS OF PARTNERSHIP

There are various kinds of partnership for which some of them are disused below;

  1. General partnership: in this kind of partnership, the partner has equal responsibility and bear and shear all risk together. If agreed or written, all of them have equal power, unlimited liability, take active and shear the profit equally (JU Anyaele, 1990)
  2. Limited partnership: in this all the partners do not take equal part in the management of the business. The liability of the partners are limited to the capital that they contribute, but in adherence to the partnership law. One of the partners in a limited partnership is made the overall risk bearer, active partner and who has unlimited liability in the business.

Section 4 (2) of the limited partnership act, 1990 governs a limited partnership in the absence of the deed that a partners is liable to a specific number not professionally assign.

Special characteristics of the partnership business

 

The special characteristics of the partnership business are as follows;

  1. Mutual activity:

It state that an agent of the general partner is an agent of the partnership for the purpose of its business, their act and execution is in the name of the partnership firm is binding on the entire partners. But in a case where he laid such authority for the partnership in a particular matter and the person who he is dealing with is aware that he has not such authority personally faces the consequence. Nevertheless, if a partner makes a contract which is beyond the scope of the partnership provides that among other this one are not binding except all partners consent to them.

  • Disposal for the partnership goodwill
  • Performance of any transaction which can make partner not to carry out any other business
  • When a partnerships property of assign on trust to a creditor

FORMATION AND OPERATION OF PARTNERSHIP

The coming together of two or more person in order to enjoy a comparative advantage over other is the formation of partnership business. It could be the coming together of father, son and mother or two brothers pulling their resources together in the name of a particular business. It is clear that every Suring business entity will want to survive if the owner is not alive, hence families, friend come together to enjoy the combination of effort both of cash, knowledge, risk and management

FORMATION PROCEDURE

According to Devis Kenneth R (1966), the formation of partnership is very clear form that of the sole proprietorship. It is seen as a gradual development from sole trade. As a result of its limitation, partners rely on one another in the areas of shortcoming, other make up for it. The formation is easy because it ha minimal legal requirement;

  • Expansion of the enterprise
  • Combination of skills
  • A large capital base
  • Co-operative advantage over sole trade
  • To enjoy large gain and large scale procedure

 

The legal formalities as said above are minimal in the partnership business formation. Section 656 of the CAMD 1990 deals with the registration of the business name. The following condition must be met before the registration of nay business name.

  1. The name of the business. if the business is been carried out under tow or more business name, each of the name must be presented.
  2. The principal place of the business and its postal address and other branches
  3. The general nature of the business
  4. Information about each partner in
  1. Full name
  2. Age, sex and nationality
  3. Residence
  4. Certified photograph and other occupation ( if any)

 

Section 659 (1) CAMD 1990. on the completion for the registration procedure, the registrar shall issue a certificate of recognition bearing the cooperate name with a clearly define transaction of the registered form

 

POWER AND LIABILITIES OF THE PARTNERS

According to Anyaele JU 1990, the power of a partner is different from the right of the partners, which we have already considered in the act of the 1890. Some of the powers are –

 

  1. A partner acting within the scope of the partnership deed is binding on all order in the course of his transaction
  2. Partners can take any necessary step within their define deeds to ensure efficiency in their management
  3. Partner can be sue of be sued on the behalf of others and defend his fellow partners
  4. He has the power to dismiss an employee on the management set up
  5. A partner has the right to draw cheque or any negotiable instrument on the behalf of the fellow partners.

 

LIABILITIES OF THE PARTNERS

A partner liability can be equally be equivalent to his right in the association in any partnership business and his power. This liability include the following:-

  1. They shear equal right in the profit and loss according to their contribution ratio
  2. As long as the partners exist, they are liable to any debt and offence committed for the life time of the partnership
  3. Until a partner ceases to operate with a firm, he is liable to any owning accrued to the partners
  4. In the case of a partner dies when all in the partnership are owing, the shear of the partners account amount to his percentage owing will be deducted from hi account
  5. A partner is liable to return all the profit made in the partnership on how own.

 

ADVANTAGE AND DISADVANTAGE OF PARTNERSHIP

Partnership business dose not stand independently on its own, it has other that exists side by side with it. In view of this competition, some of the factor surrounding its existence work toward the progress of the business and other stand in constraint, hence it has advantage and its disadvantage.

 

ADVANTAGE OF PARTNERSHIP BUSINESS

The advantage of partnership business will still not be clear on comparison if not made on sole proprietorship and public comparison.

 

  1. Comparison of partnership with the sole proprietorship

 

The advantage of partnership over sole proprietorship  (Cones, 1976)

 

  • Increased financial base: since partnership business involve more than one person coming together in capital contributing, they find it easier to finance their business since partners are subjected to unlimited liability. They usually find it easier to obtain credit facility form the suppliers, lenders, bank and other financial institution. They will be more willing to advance loan to partnership business than to a sole trader.
  • Risk involved: in the case of any business misshape, partnership members will be more capable of bearing the lost than the sole proprietorship that bears the burden all alone.
  • Co-operative managerial skill; this is one of the major reason why the partnership business is set up. If the people stand co-operatively to utilize their skill, it will outnumber the outcome of the sole proprietorship. If every member of the partnership can offer the firm his or her managerial skill to the firm to boost the outcome while the sole proprietorship is all alone

 

 

COMPARISON OF BUSINESS IN PARTNERSHIP WITH THE PUBLIC SECTOR

  • Tax advantage: partnership form of business has tax advantage over public company. Business tax is not s mach as that of the full public as a result of the privacy enjoyed by the sector. The account of the sector is not subjected to public scrutiny. It becomes impossible to relevant tax authority to know the detail amount of the tax payable.

 

THE DISADVANTAGE OF PARTNERSHIP BUSINESS

  • Lack of continuity: the business may cease to continue after the death of the owners. But partnership can continue even after the death of a members or withdrawal of a member.
  • Constant disadvantage: in sole proprietorship, there is no trace to disagreement. But in partnership, since people of different business orientation come together, there is bound to be inflicting interest with bring about disagreement among the members
  • Unlimited liability: sole proprietorship enjoys unlimited in case there is loss in the business but partnership suffer unlimited liability except the limited partners. All partners suffer loss to the extent of their share capital committed in the business and beyond to the extent of the their commitment to the business.

 

LIMITATION TO THE PARTNERS’ LIABILITY

The liabilities of the partnership as have been said in this work are not without limitation. It is pertinent we mention some of those limitation below;

  1. A partner cannot be liable to debt incurred before he was admitted into the partnership business
  2. A partner cannot be liable for any wrong done by a member when he has tender his letter of resignation and after it has been published in the nationwide cassette of the government or any debt incurred after his resignation, he is not indebted or to be held responsible

 

DISSOLUTION AND WINDING UP OF PARTNERSHIP

A partner can dissolve with or without an order from the court depending on the ground on which they are winding up. They could be traced to the following reason below:

  1. Dissolution by act of the parties: this may take place based on the following reasons: if the business entered into is for a fixed term, by expiration for that term likewise, if the partnership was entered into for a single venture or undertaking. Though any partner giving notice of dissolution to the others can enter into partnership at any undefined time. This kind of partnership at will may determine any time on notice
  2. Mutual agreement: partners may agree at a time to mutually by the membership for a time or terminate their association. Though a partner, ay give the notice of his dissolution and thus before the notice take into effect, then the partnership is dissolve by death and not by notice
  • Withdrawal of a partner: every partner has the right to withdraw his membership at any time. He must have the contractual right to do that with or without causing any damage to another partner. However if the partner excise his right in contrition to the agreement, he become liable to the other partners

 

DISSOLUTION BY THE OPERATION OF THE LAW

A court may n the application of partner order dissolution in the following circumstances.

  1. When a partner is shown to be permanently of unsound mind
  2. When a partner becomes in any other way incapable of performing his function in the partnership
  3. When a partner other than the Suring has been guilty of such conduct as in the opinion of the court is calculated as to prejudicially affect the carrying on of the business.
  4. When a partner other than the partnership suing willfully or persistently commit a breach of the partnership agreement or otherwise so conduct himself that it is not reasonable practicable for the other partner to carry on the business with in partnership
  5. When the business of the partnership can only be carried out on a loss since profit is the purpose of the partnership, therefore if profit were no longer attainable, it would be winding up. It must be shown that it is not practically possible to make any profit
  6. Death of nay members of the partnership
  7. Internal decision among the partners
  8. Other reason that render the dissolution equitable for example id fraud and misappropriation in the formation of the partnership under the section 363 of the companies Act of 1960. An unregistered company which includes a partnership consisting of not less than (6) members may be wind up under the art (but not voluntarily or subject to supervision in this case). After dissolution has occur, the partners still pose the authority to do those thing, which are necessary to legitimate the firm. This includes collecting of the account receivable, paying of the partnership debt, preparing the account and distributing the remaining asset. In the case of winding up a solvent partnership, debt are paid out of the partnership funds, contribution go the partners equally or according to their agreement on the order to priority by the asset are distributed is as follows
    • Creditor of the firm
    • Creditor of the individual
    • Partners loan to the firm
    • Partners capital

 

CONCLUSION

I have attempted to reflect on the relevant issues is partnership business in this chapter. Many textbook consulted were able to identify and restrict the problem of partnership among which are disagreement, unlimited liability, frozen investment, mismanagement and so on.

However I have discovered that there is no much effort to find out the root of most problem that are hindering partnership business from doing well or new ones from being established. The observable vacuum if the aim of the project to seek solution to them. In view of this analysis, subsequent chapter will be for the questionnaire and with possible interviews. The root cause of the partnership problem and from the accumulated data suggestion and recommendation are made which I hope be helpful.

 

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