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Partnership features and difficulties

Short answer

A partnership involves two or more persons agreeing to share profits and losses of a lawful business. Key features: unlimited liability, mutual agency, shared management, no separate legal entity, and limited life. Difficulties include unlimited liability, disputes, lack of continuity, limited capital, free-rider problems, and decision delays.

Explain the features of Partnership Organization. What difficulties can a Partnership Organization possibly face?

Partnership

Under the Partnership Act, 2020 (1964) of Nepal, partnership is the relation between two or more persons who agree to do a lawful business together and share its profit and loss. The partners are collectively called a firm.

Features

  1. Two or more persons: At least two partners.
  2. Agreement: Created by a written or oral partnership deed stating capital, profit ratio, duties, etc.
  3. Lawful business: The business must be lawful and carried on for profit.
  4. Profit and loss sharing in the agreed ratio (equally if nothing is agreed).
  5. Unlimited liability: Each partner is jointly and severally liable for all debts with personal property.
  6. Mutual agency: Each partner is both agent and principal; acts of one bind all.
  7. Utmost good faith: Partners must be honest and trustworthy.
  8. Shared management: Each partner can take part in management.
  9. No separate legal entity (in most cases): the firm and partners are the same in law.
  10. Registration: The firm must be registered under the Partnership Act with the designated government office (the Department of Commerce, Supplies and Consumer Protection or a cottage and small industries office) and obtain a PAN.
  11. Limited life: Dissolves on death, insolvency or retirement unless otherwise agreed.

Difficulties

  1. Unlimited liability: A partner's wrongful act can ruin all.
  2. Disputes and conflicts over decisions, profit and work.
  3. Lack of continuity: Death or exit of a partner may close the firm.
  4. Limited capital: Restricted by the number of partners and their wealth and credit.
  5. Transfer of interest requires consent of other partners.
  6. Lack of public confidence as accounts are not published.
  7. Delay in decisions due to need for consensus.
  8. Free-rider problem: Some partners may not work equally but share equal profit.
  9. Mutual distrust and fraud risk.

✓ Answer checked by Claude Opus 5.5 (high effort)

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