---
title: "Partnership features and difficulties"
subject: "Organization and Management"
chapter: 4
key: "semester_7/organization_and_management:partnership-features"
source: https://www.bctengineer.com/q/semester_7/organization_and_management/partnership-features
site: BCT Engineering
---

# Partnership features and difficulties

Organization and Management · Chapter 4: Forms of Ownership

- Asked in: 2074 Asoj, 3+5 marks
- Video: [Business Organizations: Partnerships](https://www.youtube.com/watch?v=s8vXZTB3618) — Mr. Sinn
- Answer checked by Claude Opus 5.5 (high effort) on 2026-10-14
- Page: https://www.bctengineer.com/q/semester_7/organization_and_management/partnership-features
- Whole chapter: https://www.bctengineer.com/md/semester_7/organization_and_management/chapter-4

## Question

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

## 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.

## Answer

#### 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.**

## Check yourself

The answer's key points as multiple-choice questions, with the correct option and why.

1. What does 'mutual agency' mean in a partnership?
   A. Each partner is both agent and principal, so acts of one bind all
   B. The firm acts as an agent of the government
   C. Partners cannot make contracts
   D. Only the senior partner can act for the firm
   Answer: A. Every partner acts for the others, so the act of one binds all partners. (Key point: Mutual agency)

2. How is liability of partners described?
   A. Liable only for their own acts
   B. Only the managing partner is liable
   C. Limited to capital invested
   D. Jointly and severally liable for all debts with personal property
   Answer: D. Each partner is jointly and severally liable, so one partner's wrongful act can ruin all. (Key point: Unlimited liability)

3. If the partners have agreed nothing about profit sharing, how is profit divided?
   A. In proportion to capital
   B. Equally
   C. In proportion to work hours
   D. All to the oldest partner
   Answer: B. Profit and loss are shared in the agreed ratio, equally if nothing is agreed. (Key point: Profit sharing default)

4. Why is lack of continuity a difficulty of partnership?
   A. Partners must publish accounts
   B. It has too much capital
   C. Death, insolvency or exit of a partner may dissolve the firm
   D. It cannot be registered
   Answer: C. A partnership has limited life and may end on a partner's death, insolvency or retirement unless otherwise agreed. (Key point: Difficulty: continuity)

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