- This is a relationship between persons who engage in a business with an aim of making profits.
- It is an association of two or more persons who run a business as co-owners.
- The owners are called Partners.
- It is owned by a minimum of 2 and a maximum of 20.
- However, partners who provide professional services e.g medicine and law can form a partnership with a maximum of 50 persons.

• Capital is contributed by the partners themselves
• Partnership has limited life that is it may end anytime because of the death, bankruptcy or withdrawal of partners
• Each partner acts as an agent of the firm with authority to enter into contracts
• Partners are co owners of a business, having an interest or claim in the business.
• Responsibility, profit and losses are shared on an agreed basis
• All partners have equal right to participate in the management of the business.

Partnerships can be classified/ categorized in either of the following ways:

• According to the type/liability of partners
• According to the period of operation
• According to their activities

• General/ordinary partnership - Here all members have unlimited liability which means in case a partnership is unable to pay its debts, the personal properties of the partner will be sold off to pay the debts
• Limited partnerships - In limited partnership members have limited liabilities where liability or responsibility is restricted to the capital contributed

• Trading partnerships - This is a partnership whose main activity is processing, manufacturing, construction or purchase and sale of goods
• Non – trading partnerships - This is a partnership whose main activity is to offer services such as legal, medical or accounting services to members of the public

• Temporary partnership-These are partnerships that are formed to carry out a specific task for a specific time after which the business automatically dissolves
• Permanent partnerships- These are partnerships formed to operate indefinitely. They are also called a partnership at will

Partners may be classified according to;

• Role played by the partners - such as active partner or dormant partner
• Liabilities of the partners for the business debts - such as general partner and limited partner
• Ages of partners - major partner or minor partner
• Capital contribution - nominal/quasi partner or real partner
• Other types of partners include secret partners, retiring partners and incoming partners

- People who want to form a partnership must come together and agree on how the proposed business will be run to avoid future misunderstanding.
- The agreement can either be oral (by use of mouth) or within down.
- A written agreement is called a partnership deed.
- The contents of the partnership deed vary from one partnership to another depending on the nature of the business, but generally it contains:
- Once the partnership deed is ready, the business may be registered with the registrar of firms on payment of a registration fee.
- In case a partnership deed is not drawn, the provisions of partnership act of 1963 (Kenya) applies.

• Name, location and address of the business
• Name, address and occupation of the partners
• The purpose of the business
• Capital to be contributed by cash partner
• Rate of interest on capital
• Drawings by partners and rate of interest on drawings
• Salaries and commissions to partners
• Rate of interests on loans from partners to the business
• Procedures of dissolving the partnership
• Profit and loss sharing ratio
• How to admit a new partner
• What to do when a partner retires dies or is expelled
• The rights to inspect books of accounts
• Who has the authority to act on behalf of other partners

• All partners are entitled to equal contribution of capital
• No salary is to be allowed to any partner
• No interest is to be allowed on capital
• No interest is to be charged on drawings
• All profits and losses are to be shared equally
• Every partner has the right to inspect the books of accounts
• Every partner has the right to take part in decision making
• Interest is to paid on any loans borrowed by partners (The % rate varies from one country to another)
• During dissolution the debts from outside people are paid first then loans from partners and lastly partners capital.
• No partner should carry out a competing business
• Any change in business such as admission of new partners must be through the agreement of all existing partners.
• Compensation must be given to a partner who incurs any loss when executing the duties of the business.

i) Partners contribution
ii) Loans from banks and other financial institutions
iii) Getting items on hire purchase
iv) Trade credit
v) Ploughing back profit
vi) Leasing and renting.

i) Unlike sole proprietorship, partnership can raise more capital.
ii) Work is distributed among the partners. This reduces the workload for each partner
iii) Varied professional/skilled labour; various partners are professionals in various different areas leading to specialization
iv) They can undertake any form of business agreed upon by all the partners
v) There are few legal requirements in the formation of a partnership compared to a limited liability company.
vi) Losses and liabilities are shared among partners
vii) Continuity of business is not affected by death or absence of a partner as would be in the case of a sole proprietorship
viii) Members of partnership enjoy more free days and are flexible than owners of a company
ix) A Partnership just like sole proprietorship is exempted from payment of certain taxes paid by large business organizations.

i) A mistake made by one of the partners may result in losses which are shared by all the partners
ii) Continued disagreement among the partners can lead to termination of the partnership
iii) Decision-making is slow since all the partners must agree
iv) A partnership that relies heavily on one partner may be adversely affected on retirement or death of the partner
v) A hard working partner may not be rewarded in proportion to his/her effort because the profits are shared among all the partners
vi) There is sharing of profits by the partners hence less is received by each partner
vii) Few sources of capital, due to uncertainty in the continuity of the business few financial institutions will be willing to give long-term loans to the firm.

A partnership may be dissolved under any of the following circumstances:
i) A mutual agreement by all the partners to dissolve the business
ii) Death, insanity or bankrupting of a partner
iii)A temporary partnership on completion of the intended purpose or at the end of the agreed time.
iv) A court order to dissolve the partnership
v) Written request for dissolution by a partner
vi) If the business engages in unlawful practices
vii) Retirement or admission of a new partner may lead to a permanent or temporary dissolution
viii) Continued disagreements among the partners