Chapter 4 Partnership

Question 1

Define partnership.

Answer 1

The relation between persons who have agreed to share the profits of a business carried on by all or any one of them acting for all.

(Partnership Act 1932)

Question 2

List any five properties of the partnership business.

Answer 2

• Un-limited liability
• No separate legal entity
• Mutual cooperation
• Partner as agent
• Division of profit or loss

Question 3

State any five advantages of partnership.

Answer 3

• Larger capital
• Mutual consultation
• Division of work
• Credit facility
• Services of experts

Question 4

State any five disadvantages of partnership.

Answer 4

• Unlimited liability
• Uncertainty
• Delay in decisions
• Personal disputes
• Lack of security

Question 5

Define partnership deed.

Answer 5

Partnership deed is a document, which contains all necessary rules and regulations required to run the partnership business.

Question 6

List down the main points of partnership deed.

Answer 6

• Name of firm
• Nature of business
• Duration
• Capital
• Division of profit and loss
• Rights and duties of partners
• Name of the partners
• Division of work

Question 7

Define the registration of partnership.

Answer 7

Registration means a proof of existence of partnership. The process of recording the name of the firm with the registrar of firms is called the registration.

Question 8

State the advantages of registration of firm.

Answer 8

• Credit facilities
• Legal protection
• Government facilities
• Public confidence
• Business reputation
• Protection to creditors

Question 9

Explain the dissolution of partnership business or firm.

Answer 9

The dissolution of partnership among all the partners of a firm is called dissolution of firm.

(According to section 39 of Partnership Act 1932)

Question 10

List down the methods of dissolution of firm.

Answer 10

• Dissolution by agreement
• By notice
• Breach of partnership act
• Contingent dissolution
• By court

Question 11

State the duties of partners.

Answer 11

• Sincere and faithful
• Work for common advantage
• To abide by the decision of majority
• To abide by the agreement
• To keep secrecy
• Maintenance of true account

Question 12

What is the right of profit?

Answer 12

The right of profit refers to the entitlement of partners to share in the profits of the partnership.

Question 13

What are the liabilities of partners?

Answer 13

The liabilities of partners include:
(i) Joint liability
(ii) Liability of a new partner
(iii) Liability of retired partner
(iv) Liability of deceased partner
(v) Liability of insolvent partner

Question 14

What are the forms of partnership under Islamic laws?

Answer 14

(i) Shirkat-ul-Mufavda
(ii) Shirkat-ul-Anan
(iii) Shirkat-ul-Wajooh
(iv) Shirkat-ul-Tagabal

Question 15

What are the types of partnership?

Answer 15

There are four kinds of partnership:
(i) Partnership for fixed period
(ii) Partnership at will
(iii) Limited partnership
(iv) Particular partnership

Question 16

Why was the need for partnership business felt?

Answer 16

The need for partnership business arose due to deficiencies in sole proprietorship, such as:
(i) Shortage of capital
(ii) More burden of loss
(iii) Failure of managing business affairs

Question 17

What is meant by partnership at will?

Answer 17

Partnership at will is when no provision is made in the partnership agreement for the duration of the partnership, allowing it to continue until mutual consent prevails among the partners.

Question 18

What is meant by limited partnership?

Answer 18

Limited partnership is formed under the Limited Partnership Act 1907, where at least one partner’s liability is limited and at least one partner has unlimited liability.

Question 19

What is the best option for a partnership agreement?

Answer 19

The best form of partnership deed is that it must be written, registered, and signed by all partners, so they know their rights and duties.

Question 20

What is meant by a nominal partner?

Answer 20

A nominal partner is a partner who neither invests capital nor shares in the profit or loss of the firm and does not participate in management.

Question 21

Who is a minor partner?

Answer 21

A minor partner is a partner whose age is less than 18 years and may become a partner with the consent of all other partners.

Question 22

How does the distribution of assets take place after the dissolution of partnership?

Answer 22

After dissolution, assets are distributed as follows:
(i) Debts of outsiders are paid
(ii) Invested capital of partners is paid
(iii) Remaining amount is distributed according to profit sharing ratio.

Question 23

What is meant by Shirkat-ul-Wajooh?

Answer 23

In Shirkat-ul-Wajooh, no partner brings capital; the partnership may be started by taking loans or purchasing goods on credit, and profits or losses are distributed based on loans taken.

Question 24

Define Shirkat-ul-Anan.

Answer 24

In Shirkat-ul-Anan, partners may have different shares in capital, and profits or losses are distributed according to the capital contributed.

Question 25

What are three important points from the definition of partnership?

Answer 25

Three important points are:
(i) Partnership shows a business relationship between persons.
(ii) The main objective is profit.
(iii) Business may be managed by all or any one of them acting for all.

Question 26

Who is a junior partner?

Answer 26

A junior partner is a partner who has invested small capital and has limited business experience, resulting in a lower ratio of profit and loss.

Question 27

Define sleeping partner.

Answer 27

A sleeping partner is one who invests capital in the business and is responsible for profit and loss but does not participate in the business’s operations.

Question 28

Define senior partner.

Answer 28

A senior partner is one who has invested large capital and plays an important role in management, with a higher ratio of profit and loss.