Skip to main content

Characteristics of a Business Partnership

This author shares business, economics, and lifestyle articles.

Characteristics of partnership

Characteristics of partnership


In a partnership contract, two or more persons bind themselves to contribute money, property, or industry to a common fund, with the intention of dividing the profit among themselves. Two or more persons may also form a partnership for the exercise of a profession.

An association of two or more persons to carry on, as co-owners, a business for profit. (Uniform Partnership Act, Section 6).

Partnerships resemble sole proprietorships, except that there are two or more owners of the business. Each owner is called a partner.

Partnerships are often formed to bring together various talents and knowledge or to bring needed capital into a business. They are generally associated with the practice of law, public accounting, medicine and other professions. Partnerships of this nature are called general professional partnerships. On the other hand, service industries, retail trade, and wholesale and manufacturing enterprises may also be organized as partnerships.


The characteristics of partnerships are different from the sole proprietorships already studied in basic accounting. Some of the more important characteristics are as follows:

Mutual Contribution. There cannot be a partnership without the contribution of money, property or industry (i.e. work or services which may either be personal manual efforts or intellectual) to a common fund.

Division of Profits or Losses. The essence of a partnership is that each partner must share in the profits or losses of the venture.

Co-Ownership of Contributed Assets. All assets contributed into the partnership are owned by the partnership by virtue of its separate and distinct juridical personality. If one partner contributes an asset to the business, all partners jointly own it in a special sense.

Mutual Agency. Any partner can bind the other partners to a contract if he is acting within his express or implied authority.

Limited Life. A partnership has a limited life. It may be dissolved by the admission, death, insolvency, incapacity, withdrawal of a partner or expiration of the term specified in the partnership agreement.

Unlimited Liability. All partners (except limited partners), including industrial partners, are personally liable for all debts incurred by the partnership. If the partnership can not settle its obligations, creditors' claims will be satisfied from the personal assets of the partners without prejudice to the rights of the separate creditors of the partners.

Income Taxes. Partnerships, except general professional partnerships, are subject to tax at the rate of 34% (in 1998), 33% (in 1999) and 32% (in 2000 and thereafter) of taxable income.

Partners' Equity Accounts. Accounting for partnerships is much like accounting for sole proprietorships. The difference lies in the number of the partners' equity accounts. Each partner has a capital account and a withdrawal account that serves similar functions as the related accounts for sole proprietorships.

Advantages and Disadvantages

A partnership offers certain advantages over a sole proprietorship and a corporation. It also has a number of disadvantages. They are as follows:

Scroll to Continue

Read More From Toughnickel

Advantages Over Proprietorships

  1. Brings greater financial capability to the business.
  2. Combines special skills, expertise and experience of the partners.
  3. Offers relative freedom and flexibility of action in decision-making.

Advantages Over Corporations

  1. Easier and less expensive to organize.
  2. More personal and informal.


  1. Easily dissolvable and thus unstable compared to a corporation.
  2. Mutual agency and unlimited liability may create personal obligations to partners.
  3. Less effective than a corporation in raising large amounts of capital.

Partnerships vs. Corporations

Manner of Creation. A partnership is created by mere agreement of the partners, while a corporation is created by operation of law.

Number of Persons. Two or more persons may form a partnership; in a corporation, at least five (5) persons, not exceeding fifteen (15).

Commencement of Juridical Personality. In a partnership, juridical personality commences from the execution of the articles of partnership; in a corporation, from the issuance of a certificate of incorporation by the Securities and Exchange Commission.

Management. In a partnership, every partner is an agent of the partnership if the partners did not appoint a managing partner; in a corporation, management is vested in the Board of Directors.

Extent of Liability. In a partnership, each of the partners except a limited partner is liable to the extent of his personal assets; in a corporation, stockholders are liable only to the extent of their interest or investment in the corporation.

Right of Succession. In a partnership, there is no right of succession; in a corporation, there is a right of succession. A corporation has the capacity of continued existence regardless of the death, withdrawal, insolvency or incapacity of its directors or stockholders.

Terms of Existence. In a partnership, for any period of time stipulated by the partners; in a corporation, not to exceed fifty (50) years but subject to extension.


1. According to Object:

  • Universal partnership of all present property. All contributions become part of the partnership fund.
  • Universal partnership of profits. All that the partners may acquire from their industry or work during the existence of the partnership and the use of whatever the partners contributed at the time of the institution of the contract belong to the partnership.
  • Particular partnership. The object of the partnership is determinate—its use or fruit, specific undertaking, or the exercise of a profession or vocation.

2. According to Liability:

  • General. All partners are liable to the extent of their separate properties.
  • Limited. The limited partners are liable only to the extent of their personal contributions. In a limited partnership, the law states that there shall be at least one general partner.

3. According to Duration:

  • Partnership with a fixed term or for a particular undertaking.
  • Partnership at will. One in which no term is specified and is not formed for any particular undertaking.

4. According to Purpose:

  • Commercial or trading partnership. One formed for the transaction of business.
  • Professional or non-trading partnership. One formed for the exercise of profession.

5. According to Legality of Existence:

  • De jure partnership. One which has complied with all the legal requirements for its establishment.
  • De facto partnership. One which has failed to comply with all the legal requirements for its establishment.

Kinds of Partners

  1. General partner. One who is liable to the extent of his separate property after all the assets of the partnership are exhausted.
  2. Limited partner. One who is liable only to the extent of his capital contribution.
  3. Capitalist partner. One who contributes money or property to the common fund of the partnership.
  4. Industrial partner. One who contributes his knowledge or personal service to the partnership.
  5. Managing partner. One whom the partners has appointed as manager of the partnership.
  6. Liquidating partner. One who is designated to wind up or settle the affairs of the partnership after dissolution.
  7. Dormant partner. One who does not take active part in the business of the partnership and is not known as a partner.
  8. Silent partner. One who does not take active part in the business of the partnership though may be known as a partner.
  9. Secret partner. One who takes active part in the business but is not known to be a partner by outside parties.
  10. Nominal partner or partner by estoppel. One who is actually not a partner but who represents himself as one.

This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.


kishur on December 19, 2019:

are there any similarities between corporation and partnership

Alizae on November 19, 2019:

Thank you so much ......

etengu brian on November 15, 2019:

thanks alot because its shaping the future of somany people

Jay Demavivas on May 22, 2019:

Thank you so much.. It helps a lot.

JBM on February 18, 2019:

Thankyou so much.

It really helped me.

Kingsman on September 13, 2018:

Good staff really helpful

ARSAng on September 09, 2018:

This is exactly what are book says

Gigi on August 16, 2018:

This is what exactly our lecture last meeting

jediel murerwa on March 06, 2017:

its so educative love it

suzy on February 08, 2017:

The content z satisfying and understandable

kingdom on November 18, 2016:

This is really has helped me alot. Thanks for your good work. Although I have a note

Rosa Mae opong on November 18, 2016:

Thank you.... Its nice

panacea on June 12, 2016:

Thanks it increase my knowledge

Wayua on December 03, 2015:

This good work,internet browsers are safe and well equipped.Thank you

bong on November 27, 2015:

This saves my oral resitation today.

gain alot from this website. on October 30, 2015:

Thanks for giving us the knowledge that we need.

shalona on October 09, 2015:

Thanks alot it really helped me

regine on July 10, 2015:

thanks a lot ,,,,,,,,

musa kondah kanu on July 09, 2015:

Thanks a lot I have being looking for this note so badly. But now I have found it.pls add more

busisiwe on March 18, 2015:

Thank for helping with my assignment

Dikeledi on March 05, 2015:

Thnx a lot 4 this information it help me a lot

athman on February 24, 2015:

Thanks a lot, this information has a lot of benefitial for me.

Leonie Joe on February 21, 2015:

Im an accounting student,this information helps mi a lot!

Ibrar Younas on January 06, 2015:

Thanks for giving information. I m really happy when I saw this page.

Abby on November 19, 2014:

Ohh. thanks . Laking tulong . :)

Prime "BULLSHIT" Basilia on November 15, 2014:

Thank you ..


kaye on November 12, 2014:

example nga po ng classification of partnership according to object, liability, duration, purpose and legality of existence

Rizumi on November 04, 2014:

Dahil dyan, mahal na kita xD

biii on June 22, 2014:

Useful cites. THAnks much

elve. on June 10, 2014:

tnx. a lot through ths information im done my assingment. very well..God bless..

imran on January 22, 2014:

your work very well

iqra on December 26, 2013:

thanks for giving information

juan on November 12, 2013:

thanks, about this information. it really helps me!!!

Faraz Ahmad on September 09, 2013:

I,ve got alots of information from your site thank you very much

amos on June 21, 2013:

thks a lot

d on March 04, 2013:

This is taken from the book of Ballada. Please give credit to the author.

angelie on December 28, 2012:

im an accountant student so thank u it helped me a lot...

flavia on October 31, 2012:

actually the book is so good... i have liked it. thanks

vignesh on August 14, 2012:

very uesful book

Ramawa una on May 12, 2012:

Tnx now i knw about partership

Altaf Ahmed Piracha on March 08, 2012:

Very informative and exceellent.

omolola on February 02, 2012:

10k u 4 d article,it really helped me.

charles on November 29, 2011:

is that the all characteristic of partnership

ballada on November 26, 2011:

y u no cite sources?

bsba1 on November 16, 2011:

bkit wlang artcles ng partnership???

t o n i i :) on April 18, 2011:

thanks for the information..

now i have my assignment...


thanks a lot ...

Paulette on February 23, 2011:

This is great help it

charmaine salvador on January 07, 2011:

hey can i have the full name of the author of this article or the one who uploaded it. i need it so bad. thank you

deedee on November 18, 2010:

i love it ! Wer currently having discussion about this and i was able to answer the recitation .. Thanks ! Great help ... More power ..

eureka on November 16, 2010:

dis is lot of knowledge that we will encounter,,and thanks because we have our assignment about partnership ad i know that info from the book of Ballada,,thanks a lot,,,dis is very help for us student from college of accountancy

allyna on November 10, 2010:

yah it really came from ballada we just discussed it this afternoon.. it will help a lot because i have no book at the moment! ran out of stock!!!

ilari on November 10, 2010:

this is very similar to partnership ang corporation by win ballada. i have the book, but i came by to find refs.. :) thanks by the way

aiko on November 09, 2010:

tnx for the info it really heiped me.

I'm a BSA student pls add more.. ;]

bhie on November 09, 2010:

i have a book like this...

yoyo on November 07, 2010:

this is a very big help for us students from college of commerce

Related Articles