PARTNERSHIP FIRM (AOP) – AN OVERVIEW

• Act in good faith
• Carry on business
• Share losses in a pre-agreed proportion
• Use the firm’s property for the firm
• Account for personal profits
• Be liable individually and jointly
• Work for the greatest common advantage
• Render accounts
• Disclosure
• Indemnify for frauds
• Act within authority
• Transfer interest

The partners have equal rights and authority to participate in managing the business in the absence of an agreement to the contrary. Each partner has an equal vote when matters need to be decided. However, when the contribution of capital to a partnership is not even, the votes are weighted according to the partners’ respective financial interests.

When there are several partners, or if there are numerous or complex partnership business activities, the partnership agreement may create classes of partners with different voting and financial rights.

1. t is mandatory to register a firm with the Registrar of Firms (Industries, Commerce & Investment Department) under The Partnership Act of 1932, as an AOP cannot otherwise exist.
2. It is mandatory to register with FBR for National Tax Number (NTN) and Sales Tax Number (STN).

It is mandatory for an establishment having 5 or more employees, to register with Social Security.

• 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.
• Partnership Businesses can be dissolved at any time because of no legal restrictions. Its dissolution is easy as compared to a Joint Stock Company.
• A partnership can collect more capital in the business through the joint efforts of the partners as compared to a sole proprietorship.
• As there is an unlimited liability in the case of a partnership, every partner performs his duty honestly.
• In partnership, it is not compulsory to publish the accounts. So, the business secrecy remains among partners. This factor is very helpful for the successful operation of the business.
• It is a flexible business and partners can change their business policies with mutual consultation at any time.
• Every partner pays tax individually. So, a firm is in a better position than compared to Joint Stock Company.
• The public shows more confidence in partnership as compared to the sole proprietorship. If a firm is registered, people feel no risk in creating relations with such business.
• In partnership, all policy matters are decided with the consent of each partner. This gives protection to minority partners.

• Liabilities of the partners in a partnership concern are joint and several may expose anyone or more partner(s) to third party liabilities because of the acts or omission of other partner(s). Especially in the cases where one partner is an investor and not interfering in day to day affairs of the venture.
• Another issue which might erupt in a partnership structure is the entitlement of any Intellectual Property (“IP”) created in the course of business. The IP is owned by its creator unless there is an agreement to the contrary. In the case of Startups, it is usually agreed to vest the title of an IP in the name of the legal entity. However, the property of a partnership vests in the partners jointly and severally. Therefore, in case of any dispute or dissolution of the partnership, the dispute as to the title of IP becomes questionable and the interest of the investor (depending on the sort and extent of the investment) is jeopardized.
• The life of this type of business organization is very limited. It may come to an end if any partner dies or a new partner enters into business.
• There are no effective rules and regulations to control the partnership activities. So, it cannot handle large-scale production.