Partnership | Types, Ordinary Partnership & Limited Partnership

Partnership Types There are two primary types of partnership businesses: Ordinary Partnership (or General Partnership) Characteristics: Membership/Number of partners: Can consist of 2 to 20 persons. However, the restriction of not more than 20 persons no longer applies to certain professionals according to the Companies Act 1967. Formation: No special formality, such as registration, is […]

Partnership Types

There are two primary types of partnership businesses:

  1. Ordinary Partnership (or General Partnership)

Characteristics:

  1. Membership/Number of partners: Can consist of 2 to 20 persons. However, the restriction of not more than 20 persons no longer applies to certain professionals according to the Companies Act 1967.
  2. Formation: No special formality, such as registration, is required.
  3. Capital/Finance: Obtained through contributions from partners; contributions may vary.
  4. Liability of Partners: Unlimited liability.
  5. Profit Sharing: Profits shared or distributed according to the agreement in the deed.
  6. Powers of Partners: Each partner acts as an agent for others in carrying out the partnership business.
  7. Management/Control: All partners participate in business management.
  8. Legal Status: Not a separate legal entity.
  9. Existence/Dissolution: Automatically dissolved by the death, bankruptcy, or insanity of a partner.

 

Types of Ordinary Partners:

  1. Active Partner: Actively involved in the management, shares profits, and losses.
  2. Sleeping or Dormant Partner: Contributes capital but does not participate in day-to-day management.
  3. Nominal or Quasi Partner: Allows the use of their name but does not contribute capital or partake in management.

 

  1. Limited Partnership

   Characteristics:

  1. Membership/Number of Partners: Same as for ordinary partnerships.
  2. Formation: Must be registered with the Corporate Affairs Commission to avoid limited partners being liable as general partners.
  3. Capital/Finance: Contributions by partners.
  4. Liability of Partners: Limited partners only lose the contributed capital in the event of bankruptcy or debt; at least one general partner has unlimited liability.
  5. Profit Sharing: Profits shared according to the agreement in the deed among general and limited partners.
  6. Powers of Limited Partner: Limited partners cannot bind the firm in trading contracts but can inspect the firm’s books and offer advice.
  7. Management/Control: Limited partners cannot participate in business management.
  8. Legal Status: Not a separate entity.
  9. Existence/Dissolution: Automatically dissolved by the death, bankruptcy, or insanity of a partner.
  10. Withdrawal of Capital: Limited partners cannot withdraw capital without the consent of other partners.

 

   Demerits or Limitations of a Limited Partner:

  1. Cannot partake in firm management.
  2. Must be registered with the Registrar, Corporate Affairs Commission.
  3. Lacks the power to make binding contracts on behalf of the firm.
  4. New partners can be admitted without their consent.
  5. Cannot withdraw invested capital without the consent of other partners.

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