Principles of Commerce

I .COM I
According to the Syllabus of FBISE & BISE Rwp.

Chapter 4 Partnership
Q1: Define Partnership?
Ans: According to Partnership act 1932, “Partnership is an association of two or more than two person who carry on
business together for the purpose of making profit. Partnerships come in two varieties: general partnerships and limited
partnerships.
Q2: Define General Partnership?
Ans: A general partnership is the most common type of partnership. It refers to a relationship in which all partners
contribute to the day-to-day management of the business. Each partner will have the authority to make business
decisions .The liabilities of the partners are often equal or Stated in partnership Deed.
Q3: Define Limited Partnership?
A limited partnership is a relationship where one or more partners are not involved in the day-to-day management of the
business. Often, a limited partner, sometimes known as a “silent partner,” will serve solely as an investor in the business

Q4: Define Partnership Deed?

Ans: Partnership Deed is a document which contains all necessary rules and regulation of partnership Business. It
may be of three Types
1. Oral
2. Written
3. Written and Register
Q5: Define dissolution of Partnership Business?
Ans: When the Partnership Business among the Partners Comes to an end this is called Dissolution of Partnership
firm. Dissolution is of following types
1) Dissolution by agreement
2) By notice
3) Breach of partnership Act
4) By court.

Q6: what are the different types of Partnership?

Ans: There are four types of Partnership
1) Partnership for fixed period
2) Partnership at will
3) Limited partnership
4) Particular partnership

Q7: What is partnership at will?

Ans: when there is no provision is made in partnership agreement business for the time period of partnership then the
partnership is called partnership at will.
Q8: who is minor partner?
Ans: A minor partner is a partner whose age is less than 18 years. Minor can be the partner with the consent of other
partners.

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 Principles of Commerce
I .COM I
According to the Syllabus of FBISE & BISE Rwp.

Q9: Define Sleeping partners?

Ans: If any person invest his capital in the business and he is responsible for profit and loss but does not involve in the
working or management of the business is called sleeping Partner.
Q10: Define nominal Partner?
Ans: A partner who does not invest his capital nor he take parts in business activities and do not get any profit or loss.
Firm use only his name due to his good reputation is called nominal partner
Q11: When one partner withdraws, how will the purchase price be determined?
One possibility is to agree on a neutral third party, such as your banker or accountant, to find an appraiser to determine
the price of the partnership interest.
Q12:If a partner withdraws from the partnership, when will the money be paid?
Depending on the partnership agreement, you can agree that the money be paid over three, five or 10 years, with
interest. You don't want to be hit with a cash-flow crisis if the entire price has to be paid on the spot on one lump sum

(Long Questions)
Q1: Define Partnership? What are the advantages and disadvantages of Partnership?
DEFINITIONS
According to Partnership act 1932, “Partnership is an association of two or more than two person who carry on business
together for the purpose of making profit. Partnerships come in two varieties: general partnerships and limited
partnerships.

ADVANTAGES OF PARTNERSHIP
Following are the advantages of partnership:

1. Easy Formation
This type of business organization can be formed easily without any complex legal formalities. Two or more
persons can start the business at any time. Its registration is also very easy.

2. Easy Dissolution
Partnership Business can be dissolved at any time because of no legal restrictions. Its dissolution is easy as
compared to Joint Stock Company.

3. Larger Capital
Partnership can collect more capital in the business by the joint efforts of the partners as compared to sole
proprietorship.

4. Skilled Workers
As there is sufficient capital so a firm is in a better position to hire the services of qualified and skilled
workers..

City Standard College

Al Ahmed Plaza Range Road Near Shallay Valley Rwp. Cantt.
Ph: 051-8434139, 0345-5820808 , 0333-5323805 Page 2
 Principles of Commerce
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According to the Syllabus of FBISE & BISE Rwp.

5. Satisfaction of Partners
In this type of business organization each partner is satisfied with the business because he can take part in
the management of the business.

6. Secrecy
In partnership it is not compulsory to publish the accounts. So, the business secrecy remains within partners.
This factor is very helpful for successful operation of the business

7. Expansion of Business
In this type of business organization, it is very easy to expand business volume by admitting new partners
and can borrow money easily.

8. Public Trust
Public shows more confidence in partnership as compared to sole proprietorship. If a firm is registered,
people feel no risk in creating relations with such business.

9. Distribution of Work
There is distribution of work among the partners according to their ability and experience. This increases the
efficiency of a firm.

DISADVANTAGES OF PARTNERSHIP
The disadvantages of partnership are enumerated one by one as under:

1. Unlimited Liability
It is the main disadvantage of partnership. It means in case of loss, personal property of the partners can be
sold to pay off the firm’s debts.
2. Limited Life of Business
The life of this type of business organization is very limited. It may come to an end if any partner dies or
new partner enters into business.
3. Limited Capital
No doubt, in partnership, capital is greater as compared to sole proprietorship, but it is small as compared to
Joint Stock Company. So, a business cannot be expanded on a large scale.
4. Lack of Interest
Partners do not take interest in the business activities due to limited share in profit and limited chances of
growth of business.
5. Lack of Secrecy
In case of misunderstandings and disputes among the partners, business secrets can be revealed.
6. Chances of Dispute among Partners
In partnership there are much chances of dispute among the partners because all the partners are not of equal
mind.
7. Frozen Investment
It is easy to invest money in partnership but very difficult to withdraw it.
8. Transfer of Rights
In partnership no partner can transfer his share without the consent of all other partners.

City Standard College

Al Ahmed Plaza Range Road Near Shallay Valley Rwp. Cantt.
Ph: 051-8434139, 0345-5820808 , 0333-5323805 Page 3
 Principles of Commerce
I .COM I
According to the Syllabus of FBISE & BISE Rwp.

Q2: What is the distinction between the dissolution of the firm and the dissolution of
partnership? In what circumstances partnership firm may dissolve?

DISSOLUTION OF PARTNERSHIP
DISSOLUTION OF FIRM
When the Partnership Business among the Partners Comes to an end this is called Dissolution of
Partnership firm. Dissolution is of following types

WAYS OF DISSOLUTION
There are the five different ways for the dissolution of firm
1. Dissolution by agreement
2. Compulsory dissolution
3. Contingent dissolution
4. Dissolution by notice
5. Dissolution by court

1. Dissolution by Agreement (Sec 40)

A firm may be dissolved with the consent of all the partners or in accordance with the contract between
the partners. According to sec 40 of partnership act 1932 a firm at any time is dissolved with the
consent of all the partners, or in accordance with a contract between the partners.

2. Compulsory Dissolution (Sec 41)

Following are the causes for the compulsory dissolution
a. Insolvency
If one partner or all partners become insolvent the firm is dissolved
b. Unlawful Business
If any event happens due to which business become unlawful than the firm is dissolved

3. Contingent dissolution (Sec 42)

A firm may be dissolved on happening of following contingencies when there is no contract between
the partners..

a. Expiry of period
If a partnership is formed for a fixed period, firm will be dissolved on the completion of time period

b. Completion of Work

City Standard College

Al Ahmed Plaza Range Road Near Shallay Valley Rwp. Cantt.
Ph: 051-8434139, 0345-5820808 , 0333-5323805 Page 4
 Principles of Commerce
I .COM I
According to the Syllabus of FBISE & BISE Rwp.

If a firm is formed to perform a particular Work, the firm will be dissolved on the completion of
venture.

c. Death of partner
A firm may also be dissolved when a partner dies.

d. Insolvency
If a partner becomes insolvent the partnership is dissolved

4. Dissolution by Notice (Sec 43)

Where the partnership is at will, it may be dissolved by giving notice in writing to the other partners of
his intention to dissolve the firm. The firm is dissolved as from the date mentioned in the notice as the
date of dissolution or, if no date is so mentioned, as from the date of communication of the notice.

5. Dissolution by court (Sec 44)

The court may dissolve the firm on the following grounds at the suit of a partner.

a. Case of unsound Mind

A partnership may be dissolved by the court if a person become of unsound mind

b. Incapability of Partner
Court may dissolve partnership if any partner become permanent incapable of performing his duties

c. Transfer of Share
If a person has transferred his share without the consent of other partners, the court may order to
dissolve partnership

d. Continuous Losses
The court may order to dissolve firm if business is suffering losses continuously.

City Standard College

Al Ahmed Plaza Range Road Near Shallay Valley Rwp. Cantt.
Ph: 051-8434139, 0345-5820808 , 0333-5323805 Page 5