Skip to main content

Partnership- Meaning, Definition, Characteristics, Formation

The partnership form of the business organization came out from the limitations of the sole proprietorship business. When a business expands, a single person is unable to arrange the funds and bear the risks. He cannot manage all the functions of business by himself. Therefore, two or more persons join hands and combine their capital and skills to start a business. 

Meaning of Partnership: 
      A partnership is a voluntary association of two or more persons who agree to carry on some business jointly and share its profits and losses. They combine their funds and skills to carry on business together.

Definition by L. H. Haney :
       Partnership is the relation existing between two persons competent to make contracts, who agree to carry on lawful business in common with a view to a private gain.

Definition according to The Partnership Act 1932:
     Partnership is the relation between persons who have agreed to share profits of a business carried on by all or any one of them acting for all.

Characteristics of Partnership

1. Two or more persons:  There should be at least two persons to start a partnership business. A single person cannot enter into a partnership with himself. The maximum number of persons for a partnership business should not exceed 10 in the case of a banking company and 20 in case of other types of business. 

2. Agreement: The relation of partnership business arises from the formation of a contract and not from status or birth. There should be an agreement between persons. The agreement may be oral or in writing but it must satisfy all the essentials of contract.

3. Mutual Agency: Partnership business can be carried on by any of them acting on behalf of the others. In other words, every partner is both principal and agent. Each partner is liable for acts performed by other partners on behalf of the firm.

4. Unlimited liability: The partners of a partnership business have unlimited liability. In case the assets of the firm are insufficient to pay the debts in full, the personal property of each partner can be attached to pay the creditors.

5. Joint ownership and control: A partnership business is owned and controlled jointly by all the partners. The partners share responsibility among themselves and control the day to day activities.

6. Utmost good faith: The relations between the partners are based upon mutual trust and confidence. Every partner is expected to act in the best interest of other partners and of the firm as a whole. The partners must observe utmost good faith in all dealings with his co-partners. He must render true accounts and make no secret profits from the business.

7. Continuity: Death, retirement, insolvency, or insanity of any partner can bring an end to a partnership business. However, the remaining partner may, if they desire so, continue the business on the basis of a new agreement.

Formation of Partnership Firm

       A partnership can be formed by two or more persons. Partnership is formed through a contractual relationship between two or more persons. This relationship is based on mutual trust and good faith. The agreement between the partners is to carry on a lawful business and to share the profits and losses.
         In order to avoid disputes, the agreement should be in writing, though the law does not require the agreement to be in writing. In the absence of an agreement, the rights and duties of partners are determined by the Partnership Act 1932.

Labels:

Comments

Post a Comment

Popular posts from this blog

Sole Proprietorship

       Sole Proprietorship is a popular form of business organization and it is the most suitable form of organization for small businesses. It is one of the oldest, simplest, and common form of business organization. Sole proprietorship form of business is established, financed, owned, and managed by a single person who is known as, Sole Trader or Sole Proprietor . The sole trader bears all the risks and he alone is responsible for all the profit and losses of his business. He may borrow funds and employ people to help him but the ultimate authority and responsibility lie in his hands. Therefore, Sole trader business is a one-man show. Definition of Sole Proprietorship by L.H. Haney        The individual proprietorship is the form of business organization at the head of which stands an individual as one who is responsible, who directs its operations and who alone runs the risk of failure. Definition by B.O. Wheeler       The sole ...
12 comments
Read more

Classification of Human Activities

Unit 1 - Nature and Purpose of Business Chapter 1- Classification of human activities        Points covered in this chapter:- Meaning and characterstics of Human Activities Classification of human activities - Economic and Non-Economic Activities Distinction between Economic and Non- Economic Activities Types of Economic activities Distinction between Business, Profession and Employment. Click here to download the Chapter Notes;   Download
12 comments
Read more

Classification of Business Activities ( Part 2) - Commerce

            Commerce and Its Nature            Commerce refers to all those activities which are necessary for bringing goods from the place of their consumption. Commerce includes not only trade but also services such as transport, warehousing, packaging, insurance, banking and sales promotion which are incidental or auxillaries to trade. Characteristics of Commerce 1. Economic Activity : Commerce is an economic activity because it consists of activities which are undertaken for earning profits. A trader buys goods with the aim of selling them at a profit. 2. Exchange of goods and services : Commerce involves exchange and distribution of goods and services. Goods may be purchased or produced for sale. 3. Profit Motive : The motive of commercial activities is to earn profits. Any activity which does not have the aim of profit will not be a part of commerce. 4. Regularity of transaction : An isolated transaction does no...
9 comments
Read more