The material publish under YEPNepal are not allowed to use for commercial/business purpose. YEP Nepal is a non-profit organization and works for children.

1. Business Studies
Nepal Education Board (NEB)
www.yepnepal.com @OfficialNabinPandit
Grade - 11
nabinpandit@gmail.com

2. Partnership Firm - Content
1. Concept of partnership firm and partners
2. Characteristics of partnership firm
3. Difference between sole trading and partnership
4. Merits and demerits of partnership firm
5. Types of partners abd partnershi[
6. Rights and duties of partners
7. Partnerhip deed: Meaning and contents
8. Registration and renewal of partnership firm in nepal
9. Dissolution of partnership firm in nepal
6/4/20www.yepnepal.com
1

3. Concept of Partnership firm:
• Partnership is a form of business organization which has evolved to
overcome the shortcomings of sole proprietor.
• Therefore, two or more than two persons form a partnership to carry on
business by pooling their financial resources and managerial skills.
• According to Lewis H. Haney,“Partnership is the relation between
persons competent to make contract who agreed to carry on a lawful
business in common with a wiew of private gain”
6/4/20www.yepnepal.com
2

4. Characteristics of partnership firm
• Unlimited liability: Proprietor is liable for all the debts of the business. In
case the assets are insufficient to meet the debts, the personal property of
the proprietor can be attached.
• Difficulty in transfer of shares: Partners cannot transfer their share without
the consent of other partners. There may be conflict when done otherwise.
• Higher capital: Many partners invest capitals and there is higher flexibility
in capital because new partner can be agreed to be associated and investing
can be increased.
• Reduced risk: Partners have right to take part in management. They have
the duty to bear risk with proportion too.
6/4/20www.yepnepal.com
3

5. Characteristic of Partnership Cont…
• Association of two or more persons: It must be two or more person to enter into
contract. Association of two or more persons can only create partnership. In
association of two or more persons, maximum and minimum number of persons
is not mentioned.
• Agreement: It is set up by agreement between partners. It must be written and
legal agreement so that it will reduce dispute.
• Formation: In Nepal according to Partnership Act 2020 BS, the minimum number
of member must be 2 and maximum number is not mentioned in the act. A
partnership firm must be registered either in department of industry of commerce.
• Sharing of profit or loss: There must be agreement amongs the partner for sharing
profit or loss of the organization. In the absence of agreement these will
distributed equally. 6/4/20www.yepnepal.com
4

6. Characteristic of Partnership Cont…
• Lack of separate entity: Partnership firm do not have freedom to make any
decision and activities freely as they are not legally separate from its investor. All
the activities done in the name of partner and all the partners are legally liable for
every activity of the firm.
• Management: Management of firm will be handle by all the member or as per
mutual agreement/consent. Each partner has equal rights and duties to take part in
management. They will manage firm as per their agreement or mutual consent.
• Mutual agency: Partners of the firm are plays the role of agency and principle.
Active partner participate in various activities which helps to grow the business
and other participate in other outside activities which is the role of principle.
• Utmost good faith: All partners are bind to each other through their activities so
there must be good relationship and trust between the partners.
• Individuality of partners: All the partners can have their own individuality and
they can participate in any activity which is not directly harmful for the
organization. 6/4/20www.yepnepal.com
5

7. Difference between Sole Trader & Partnership Firm
6/4/20www.yepnepal.com
6

8. Merit of Partnership Firm
• Easy to start and dissolve: A partnership firm can be setup easily and
quickly. There is not much legal formalities and expenditures
are involved in the establishment of a partnership. Similarly, a partnership
firm can be closed down very easily and quickly.
• Higher capital: Many partners invest capitals and there is higher flexibility
in capital because new partner can be agreed to be associated and investing
can be increased.
• Reduction of work load: Partners mustn’t work more to earn more profit.
Higher profit generation is important. So, there is no dull and monotonous
work. In case of monotony, health problem to any partner then other
partners can help and reduce absenteeism.
6/4/20www.yepnepal.com
7

9. Merit of Partnership Firm
• Better decision: There is specialization in decision taking. So there can be
less chances of taking wrong decisions
• Harmonization of different ability: There are many partners in this firm and
many partners have different skills, knowledge and capacity
• Credit facility: In this liability of partners becomes unlimited. It will help
to arrange more capital. And that’s why it has more credit. It improves
more financial function
• Close supervision: There is effective management and effective
supervision. They look the business themselves.
6/4/20www.yepnepal.com
8

10. Merit of Partnership
• Secrecy: As there is no obligation to publish any business
planning/strategy or financial statement, their business remain secret with
in the members only.
• Flexible: There can be change in management, capital and production.
This change can be made by mutual agreement of partners
• Reduced risk: Partners have right to take part in management. They have
the duty to bear risk with proportion too.
• Higher innovation: Many partners use their own ideas and innovation
capacity. So there is unlimited managerial ability
6/4/20www.yepnepal.com
9

11. Demerit of Partnership Firm
• No Business secrets: The partner can keep the secrets to himself but these secrets
can be known to competitors or others when there is conflict among the partners
• Uncertain existence: Death of any partner can sometime cause death of entire
firm. Dishonesty, conflict and lack of resource also can collapse the firm
• No Personal contact: A partner can’t be in a position of maintain intimate
contacts with his customers and employees. He cannot be able enter to the
requirements of each and every customer. Then there is no close personal touch
which decreases the competitive strength of the business.
• Unlimited liability: Proprietor is liable for all the debts of the business. In case the
assets are insufficient to meet the debts, the personal property of the proprietor
can be attached.
6/4/20www.yepnepal.com
10

12. Demerit of Partnership Firm
• Delay in decisions: The partnership firm is completely not free to take all
decisions and to implement them. The partners need to consult or seek
others approval. Delay in decisions reduces the efficiency of business.
• Danger of conflict: Many persons are the owners of partnership firm.
There can be misunderstanding and jealousy among them and these cause
problems in operation of business and profit making
• Difficulty in transfer of shares: Partners cannot transfer their share without
the consent of other partners. There may be conflict when done otherwise.
• Limited resources: There is low investment, may be higher than in sole
trading but not sufficient for large scale production resulting in limited
areas of operation. 6/4/20www.yepnepal.com
11

13. Types of Partners
• Active partner: They provide capital and play active part in business
• Inactive partner: They provide capital to business and share profit and loss
to firm but do not take part in management and day to day activities.
• Nominal partners: They act only as a partner and give their name to the
firm. They do not take part in management and day to day activities and
share profit and loss to firm
• Secret partner: Their membership is kept secret to the outside world. They
can take part in management
• Limited partners: financial liability of such partners is limited only up to
their investment.
• Quasi partner: who has got retirement but his investment is still in the firm
6/4/20www.yepnepal.com
12

14. Types of Partners
• Partner in profit only: They share profit only but no loss is shared. They are
generally inactive but have relation in money and goodwill.
• Minor partners: They do not enter into contract and can’t be made partner in real
sense but if there is consent of all partners then their partnership can be taken into
consideration
• Retrieval partners: Even if this partner leaves the firm other partners continue to
operate business. They are liable for all debtor and share profit too. But they do
not take part in management and day to day activities.
• Incoming partners:
• If there is consent of all partners then their partnership can be taken into
consideration. They aren’t held liable for debt before approval of all partners.
• Sub-partner: is a partners of partner. Who is not formal partner of the
organization but he is the internal partner of formal partner. 6/4/20www.yepnepal.com
13

15. Types of Partnership
• General partnership: Partners have equal rights and all of them participate in
management. It is jointly involved to operate the business. There are the types of
general partnership.
• Partnership at will: It continues up to time of partner. It is dissolved when all partners
want dissolution. They can leave the firm at will. There is no fixation of duration of firm
• Particular partnership: It is established for definite workers at definite period. When task
is finished partnership is dissolved in particular partnership.
• Limited partnership: A limited partnership is that type of partnership in which
there is one or more partners having limited liability. The liability of limited
partners is limited to their capital invested. They can’t participate in the
managerial activities but they can advice. They also don’t have right to make
decision and close the firm
• Partnership in profit: on the basis of agreement, one or more are entitled to certain
share of profits and are not to share loss. 6/4/20www.yepnepal.com
14

16. Rights of Partners
• Rights of partners
• Every partner has right to take part in planning, implementation and
control activities of the firm
• Every partner has right to express his opinion, give advice and view on any
subject
• Every partner has right to inspect and inquire about the account and ask for
the duplicate copy
• Every partner has right to share the profit according to the agreement
• Every partner has right to get interest on loan and advances
6/4/20www.yepnepal.com
15

17. Rights of Partners
• Every partner has right to use the properties of the firm but only for the
benefit of the firm not or personal use
• Every partner has right to leave the firm with consent of remaining partner
• Every partner has right to have interest on the property but should not sell
the property to anyone without the consent of other partners
• Every partner has right to dissolve the firm with the consent of other
partner
6/4/20www.yepnepal.com
16

18. Duties of Partners
• It is the duty of every partners to share the loss occurred in a firm
• It is the duty of every partners to work honestly and faithfully and work for
common benefit of all partners and firm
• It is the duty of every partners to work and make decisions within the authority
• It is the duty of every partner to maintain the financial status of the firm.
• It is the duty of every partner to stop the leakage in firm. There should not make
any secret profit.
• It is the duty of every partner to compensate on the loss and damage of firm.
6/4/20www.yepnepal.com
17

19. Partnership Deeds
The written agreement duly signed by the partners is known as partnership
deed. It is also known as agreement or article of partnership. It is the
document, which mentions the rules and regulations, way o operation of
management and way of control of activities of the firm. It is also required
at the time of registration. It helps to minimize conflict and
misunderstanding among the partners.
6/4/20www.yepnepal.com
18

20. Contents of Partnership Deeds
• Name and address of the firm
• Name and address o the partners
• Nature of rim’s business
• Duration of partnership
• Amount of capital invested by the partners.
• Interest on capital
• Division of profit
• Salary and commission
• Right and duties of partner
• Admission and removal of partnership
• Valuation of capital and goodwill at the time of admission, death
and retirement of partners
• Accounts and audits
6/4/20www.yepnepal.com
19

21. Registration Process of Partnership Firm
Partnership concerns are registered under partnership act 2020.
Procedures of registration
Apply for registration: Application form is needed to be filled up and apply for
registration. The application must include the following things
• Name, address, nature & types, total capital investment and the objective of firm
• Name and address of partners
• Amount of capital invested by each partner
• Method of sharing profit and loss
• Duration of business.
• Other particular things.: necessary documents, registration fees, copy of citizenship
6/4/20www.yepnepal.com
20

22. Registration Process of Partnership Firm
• Deposit registration fee: Registration fee should be deposited in the Nepal
Rastra Bank. Voucher is needed for the deposit of registration fee. It should
be enclosed in application form. If the firm is commercial then
recommendation letter from Nepal chamber of commerce is required.
• Receiving the certificate of registration: Concerned department receive the
application. Than an authorized officer will examine. It satisfied then the
form is approved and “certificate of registration” is issued and then legal
business can be operated.
6/4/20www.yepnepal.com
21

23. Procedure of Renewal
• The entire registered firm should be renewed each year within 35 days of
time period. He should fill application for renewal with renewal fee to the
concerned department. This amount is dependent upon the capital invested.
Effect of non-registration and non renewal
• If the partnership firm is operated without registration and renewal then it is
considered illegal. It can’t get loan from any financial institution. This
department will charge from rs 5 to rs 50 as fee. The effect of non-
registration and non renewal is if the is not registered and renewed then fee
is charged. If same crime is done for 3 times, additional rs 10 are to be paid.
If it is committed gain then partnership firm is closed and no any concern
can be established under any partners’ name.
6/4/20www.yepnepal.com
22

24. Dissolution of Partnership Firm
• Existing partners can dissolve the firm by another agreement
• Dissolution by notice, any partner can dissolve the firm by giving notice to all the partners
• If any partner is unable to take responsibility of partnership deed.
• If partner do not pay the amount payable to the firm
• If shares are transferred without consent of other partners
• If right of partners is taken over by the court of compensation
• Liable for negligence
• Death of partner
• Dissolved by concerned department
• Commits illegal work or violate the rules of the firm
• If not renewed in given time. 6/4/20www.yepnepal.com
23

25. Any Questions?
www.yepnepal.com @YEPNepal yepnepal@gmail.com