Introduction:
- Partnership firm comes to existence because of limitations and failures of
the sole proprietorship mainly due to limited finance and managerial skill. A
business owned and managed by more than one person where the entire owners
share in the profits and losses of the business as well as the liability is
called a partnership firm. The owners
are partners and the organization is called a firm. This form of organization is
governed by the Indian Partnership Act 1932.
.
Definition: - “Partnership is the relation between the persons who have agreed
to share the profits of a business carried on by all or any one of them acting
for all” (Section 4 of the Indian
Partnership Ac 1932)
The following are some of the features of a Partnership
Firm
1.
Agreement: - A partnership is formed when two or more persons
voluntarily agree to do business. This agreement may be oral or written. In
France and Italy, a written agreement among partners is a legal requirement.
However in U.S.A., U.K and India, the partnership agreement may be oral or
written. But it is always advisable to have a written agreement.
2. Sharing
profits and Losses:
- Partners share profits and losses in the agreed ratio as mentioned in
partnership deed. If the partnership deed does not mention the profit sharing
ratio, it is assumed that all partners are equal partners.
3.
Lawful Business: - partnership business cannot
undertake any business activities which is forbidden by law, i.e. which is
illegal e.g. smuggling or gambling..
4.
Number of partners: -The minimum number of partners
required for forming a partnership firm is two.
The maximum number of partners for conducting banking business is Ten and maximum number of
partners for conducting ordinary business is Twenty.
5.
Joint ownership: - All partners are joint owners
of business; therefore all the business assets and properties must be utilized
for conducting business and not for personal use.
6.
Unlimited
liability: -
The liability of each partner is joint
several and unlimited as per the Indian partnership Act 1932. all the
partners is jointly liable along with other partner for the debt of the firm.
The partners of a firm are jointly liable to third parties for liabilities.
7.
Dissolution: -The death, insolvency or insanity of any partner
results into dissolution of partnership unless specified. Otherwise the
remaining partners may continue to conduct business on the basis of a fresh
agreement among them.
8.
Principle and Agent Relationship: -Every partner of the firm
works in two capacities --viz—as a principal and as an agent. When he is with
other partners, he is known as a principal and when he is working with third
parties on behalf of the firm he is known as an agent.
