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Partnership | Meaning and Features of Partnership

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There are certain limitations to the sole proprietorship type of ownership, including limited resources, limited skill, and unlimited liability.

Business expansion entails greater risk, as well as demands more resources and management expertise. A business owner finds it difficult to meet these standards. This necessitates that more people, of all ages, get together and start a business.
For instance, one individual may be a poor leader yet owns capital, whereas another individual may be a quality manager, but lacks capital.

A partnership is formed when such people gather together, pool their resources and talents, and build a business. The restrictions or drawbacks of proprietorship are primarily responsible for the development of partnerships.

Meaning of Partnership

A partnership is a form of business where two or more people formally agree to be co-owners, divide up the duties of running the organization, and split the profits and losses the organization earns.

In India, “The Indian Partnership Act 1932” regulates all aspects and activities of partnerships. This particular law indicates that a partnership is an association of two or more people or parties who have agreed to share the profits generated from the firm while managing it jointly or on behalf of other members.

According to L H Haney,“Partnership is the relation between persons competent to make contracts who have agreed to carry on a lawful business in common with a view to  private gain”.

Persons who have formed a partnership with one another are referred to as partners. The firm name is the name under which the business operates.

Features of Partnership 

The features of Partnership are as follows:

1) Formation of Partnership

A partnership is an alliance of two or more people created by an agreement or contract. The agreement (accord) is the basis for the partnership between the parties. This type of agreement is in writing. An oral agreement is legally binding. To minimise misunderstandings, it is always preferable if the partners have a copy of the written agreement. The agreement should be to conduct some business. The mere co-ownership of a property does not establish a partnership.

For Example, if two persons jointly purchase a plot of land, they become the joint owners of the property and not the partners. But if they are in a business of sale and purchase of property for the purpose of profit, then they will be called partners.

The agreement that has been made between partners must be to share all the profits and losses of a business equally or as per the agreement. If some persons join hands for the purpose of some charitable activity, it will not be termed a partnership.

2) Number of Partners for the firm

A partnership must be manifested by at least two people who share a relatively similar purpose. In other words, the minimum number of partners in a business might be two. However, there is a limitation to the number of people they can accommodate. But in the case of banking, the number of members should not exceed ten, and in the case of other businesses, the number should not exceed twenty. If the number of members exceeds this limitation, the firm cannot be classified as a partnership firm.

3) Liability

In general partnerships, all partners are personally held accountable. It means that they are all collectively liable for retrieving all of the firm’s debts, even if it means liquidating their personal assets. Partners’ firm liability is unlimited like that of a sole proprietor,

That seems to be if the firm’s assets are inadequate to pay the obligations, the partners’ personal holdings, if any, can also be used to meet the company liabilities.

For Example, if a company has to pay Rs. 25,000/- to its suppliers of products, and only Rs. 19,000/- can be arranged from the business by the partners., then the remaining Rs. 6,000/- will have to be raised from the partners’ own holdings.

4) Risk bearing  

The risks that come with operating a firm as a team are shared by the partners. Profits are divided among the partners in an agreed-upon ratio as the return. They also share losses in the same ratio if the corporation suffers losses.

5) Decision Making and Control 

Every partner has the right to participate in the organization’s management and decision-making. The partners share responsibility for decision-making and control of day-to-day operations. Decisions are usually made with mutual consent. As a result, the operations of a partnership business are managed via the joint efforts of all partners.

Merits and Demerits of Partnership: Merits of Partnership include better decision-making, availability of funds, etc., and demerits include unlimited liability, limited resources, etc.


Last Updated : 26 Jul, 2023
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