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Class Notes
Class: XI Topic: Partnership ( Continued)
Subject: Business Studies
Limitations of Partnership
1. Unlimited liability- in partnership all the partners have unlimited liability that is if the
assets of the business are not enough to pay off business liabilities then the personal assets
of the partners can be used to pay off the liabilities.
2. Limited resources- In partnership the number of partners are Limited. Because of this the
availability of Finance is also Limited. Hence the partnership business is not able to expand
its business.
3.. Lack of continuity- Partnership may come to an end if any partner retires , dies,
becomes insolvent, insane or becomes permanently disabled. However if the partner wants
they can continue the partnership with a new agreement.
4. Possibility of conflicts- Partnership is run by a group of individuals who come from

different backgrounds and expertise. This may lead to difference in opinion amongst the
partners leading to disputes. Any dispute may result in termination partnership business.
5. Lack of public confidence- Partnership business is not required to publish its financial
reports. This may result in lesser confidence of outsiders in partnership business making
it difficult for the business to raise funds.
Conclusion:
Hence we can conclude partnership is suitable for small and medium sized business and
provides more funds as compared to sole proprietorship. However due to its limitations it is
not a popular option.
Types of partners:
1. Active partner- An active partner contributes capital, manages business activities, shares
profits and losses and has an unlimited liability.
2. Sleeping or dormant partner- A sleeping partner contributes capital, shares profits and
losses, has an unlimited liability but does not take part in day to day activities of the
business.
3. Secret partner- A secret partner contributes capital, manages business activities, shares
profits and losses, has an unlimited liability but the outsiders have no knowledge about his
status in the business.
4. Partner by Estoppel- A partner by Estoppel is an individual who through his behaviour or
conduct lets the outsiders believe that he is a partner in the business.
He does not contribute capital, nor shares profits and losses, does not participate in the
activities of the business but has an unlimited liability.
5. Nominal partner- a nominal partner is not a partner but allows the firm to represent him
as a partner. He does not contribute capital, nor shares profits Or losses, does not manage
business activities but has an unlimited liability.
6. Partner by holding out- partner by holding out is an individual who through his behavior
or conduct allows other partners of the business to represent him as their partner.
He neither contributes capital, nor shares profits and losses or manages business but has an
unlimited liability.
7. Minor partner- A minor partner is a partner below the age of 18. Legally he cannot be a
partner in the partnership but he can be admitted to the benefits of the partnership firm
with the consent of all the partners.
He neither contributes capital, nor shares losses, but has an unlimited liability.
On attaining majority the minor partner has to give a notice in writing whether he wishes to
remain as a partner in the firm. In case he fails to give such a notice he will be deemed to
Be a partner in the firm with all the rights and duties of a major partner.
Types of partnership:
Partnership business can be classified on the basis of duration and liability.
On the basis of duration partnership business is further classified into three types:
1. Partnership at will- In this type of partnership the business continues till all the
partners agree to do so. The partnership comes to an end when any partner
withdraws himself as partner from the business.
2. Particular partnership- Such type of partnership is formed to complete a specific
task or project. Partnership business comes to an end with the completion of the task
or project. This partnership is also known as partnership by purpose.
3. Partnership on the basis of time- Such type of partnership is formed for a specific
time period. At the expiry of the time period the partnership gets dissolved.
Partnership on the basis of liability
BASIS General Partnership Limited Partnership

Liability Liability of all partners is unlimited. Liability of at least one partner is
unlimited. All other partners may
have limited liability.
Registration Registration is optional. Registration is compulsory.
Continuity Continuity is affected by the death, Continuity is not affected by the

retirement , lunacy or insolvency of death, retirement , lunacy or
the partners. insolvency of the limited partners.
Participation Each partner actively participates in Limited partners do not have the
business management. right to participate in business
management.
Bound by Act of every partner binds the firm, Act of limited partners do not bind
acts other partners and the firm. the firm and other partners
PARTNERSHIP DEED
Meaning- The written agreement among the partners which contains the terms and
conditions to govern the Partnership business.
Contents of Partnership Deed

1. Name of firm
2. Nature and location of business
3. Duration of business
4. Method of preparation of accounts and procedure of auditing
5. Method of solving disputes
6. Procedure for dissolution of firm.
7. Investment made by each partner
8. Profit and loss sharing ratio
9. Duties and responsibilities of the partners
10. Salaries and drawings of the partners
11. Interest on capital and Interest on drawings
12. Terms related to admission, retirement and expulsion of a partner.
REGISTRATION
a. Registration of partnership firm is optional.
b. Although the firm can get itself registered at the time of formation of partnership or
at any time during its existence.
c. Partners can get the firm registered with the Registrar of firms of the state in which
the firm is
Situated.
d. Registration provides conclusive proof of the existence of the firm.
Consequences of Non- Registration

1. A partner of an unregistered firm cannot file a case against the firm or other partners.
2. The firm cannot file a case against third parties.
3. The firm cannot file a case against partners of the firm.
That is why it is advisable for a partnership firm to get itself registered.
Registration procedure
1. The partners have to submit an application along with the required fees to the “
Registrar of
the Firms”
2. The application must be signed by all the partners.
3. The application must contain:
a. Name of the firm
b. Location of the firm- Registered office and other branches
c. Details of partners
d. Duration of partnership business
4. After verifying the application the name of the firm is recorded in the register and
Certificate of
Registration is issued.
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Class Notes

Class: XI Topic: Partnership ( Continued)

Subject: Business Studies

4. Possibility of conflicts- Partnership is run by a group of individuals who come from

Partnership on the basis of liability

BASIS General Partnership Limited Partnership

Registration Registration is optional. Registration is compulsory.

Continuity Continuity is affected by the death, Continuity is not affected by the

Contents of Partnership Deed

Consequences of Non- Registration

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