Question 2
- What is partnership business?
- List and explain two types of partners.
Observation
Comments
Many candidates attempted this question and their response to the question was quite satisfactory as required by the examiner.
Some of the suggested answers are:
(2a) A partnership business can be defined as the relationship which subsists between two or more persons carrying on a business in common with the aim of making profit.
OR
A partnership business is a business organization in which two or more persons agreed legally to set up and manage a business with the aim of making profit.
(2b) Types of partners
- General partner/Unlimited partner: This is a partner whose liability is unlimited in case of business liquidation and is liable to the full extent of his estate for the partnership debt.
- Sleeping/Dormant Partner: This partner only contributes capital into the partnership business but does not take active part in the management of the firm.
- Quasi Partner: This is a partner who leaves his contribution in the firm after retirement in form of loan with interest and is considered as an external creditor to the business.
(iv)Nominal Partner: This is a partner that only contributes his name to the formation of the business due to his personality in the society.
OR
This is a partner who neither contributes capital nor takes part in the management of the business.
- Limited Partner: This is a partner whose liability to the business is limited to the capital contributed.
- Active Partner: This is a partner that partakes in the day-to-day running of the affairs of the business.
(2c) Provisions Applicable to Partnership Business in the Absence of Formal Agreement are:
- Profits and losses shall be shared equally;
- No partner shall be remunerated for acting in the firm’s business;
- No new partner shall be admitted without the consent of all the existing partners;
- Interest of 5% shall be allowed on any advance or loan made by a partner in excess of agreed amount contributed;
- Partner shall be compensated for any personal expenses or liabilities incurred on behalf of the business;
- There shall be no interest on capital;
- There shall be no drawings hence no interest on drawings;
- Partners shall contribute equal capital.
- The books and accounts of the firm shall be kept at the principal place of the business.