Partnership is an association of two or more persons who agree to combine their financial resources and managerial abilities to operate a business and share Profits and Losses in an agreed ratio.
Partnership as per the Indian Partnership Act, 1932 is, “Partnership is the relation between persons who have agreed to share profit of business carried on by all or any of them acting for all.”
Features of Partnership:
Partnership is formed on the basis of an agreement between two or more persons to carry on business activities. Agreement may be in written or oral form. The terms and conditions of partnership are laid in a document known as Partnership Deed.
It is not compulsory to register a partnership firm except, in the state of Maharashtra. However, if the partners so decide, it may be registered with the Registrar of Firms.
iii. Lawful Business:
Illegal business activities are not permitted by law. Partnership form of business should only undertake those business activities which are permitted by law or which are legal.
To form a partnership firm, minimum two persons are required. The maximum limit on the number of persons is 10 for banking business and 20 for other businesses. If the number exceeds the above limit, the partnership becomes illegal.
v. Sharing of Profits and Losses:
There must be an agreement among the partners to share the Profits and Losses of the business in an agreed profit sharing ratio. All partners of the firm will be entitled to an equal share in Profits and Losses, if the partnership deed is silent about the ratio
vi. Unlimited Liability:
The partners of the firm have Unlimited Liability. They are jointly as well as individually liable for the debts and obligations of the firms. If the Assets of the firm are insufficient to meet the firm’s Liabilities, the personal properties of the partners can also be utilized for the repayment of the firm’s Liabilities. However, the Liability of a Minor Partner is limited to the extent of his share in the profit.
All the partners can participate actively in the business management depending on the agreement formed.
Dissolution means to close the business. Legally, a partnership comes to an end if any partner dies, retires or becomes insolvent.
ix. Relationship between the Partners:
The partnership business may be carried on by all or any of the partners acting for all. Thus, each partner is a principal and so can act in his own right. At the same time, he can act on behalf of the other partners as an agent. Thus, every partner acts as an Agent as well as Principal.