Form Of Business Organisation:Partnership | All About Partnership

Meaning Of Partnership

Partnership means that form of organisation in which two or more than two persons willingly join hands and agree to run some lawful business.They all invest capital in the business,make use of collective managerial ability and share profit and loss among themselves.

Features Of Partnership

A.Statutory Features

(1) More Than One Person:Partnership needs a minimum of two persons because a single individual cannot be his own partner.So if in future the number of partners reduces to one,partnership is automaticaally dissolved.The number of partners cannot be more than 50.If the number of partners get reduced to the minimum two,the partnership is declared illegal.Similarly,if the number of partners increases to more than 50,the partnership is declared illegal.

(2) Existence Of Business:The joining of 2 or more person can be called partnership only when they agree to run some business.It is very essential that business should be legal.

(3) Contractual Relationship:Partnership comes into existence only on the basis of a contract between the partners.Hence,it is important to have a contract between partners.Therefore,those people who do not have the capability to enter into a contract cannot become partners.For exammple,minors,mentally unsound persons and persons declared ineligible by law cannot be taken as partners in a firm.It is true that a minor can be admitted as a partner under Section 30 but his entry will not entitle him to be a full-fledged partner because he is a partner only in the profits.

(4) Profit Motive and Sharing of Profit:One of the main chracterstics of partnership is to earn profit in business and divide it among the partners.Any enterprise whose purpose is to earn profit in business and divide it among the partners cannot legally be partnership.It is important to understand that to have share in profit is important but to have a share in loss is not necessary.Hence,there can be partners who are admitted to the firm simply for sharing the profits.For example,a minor partner only shares the profits and not the losses.

(5) Principal -Agent Relationship:This relationship means that just as an owner is responsible for any contract entered into by his agent/s operating within the limits of his/their authority.similarly, a partner can bind all the partners with his activities.In this way every partner plays a double role of an owner and an agent.

B.General Features

(1) Unlimited Liability:In partnership,every partner has an unlimited liability.In other words,every partner is responsible collectively and individually for all the liabilities of partnership.For example,in case of dissolution of partnership firm,if the the liabilities of the firm exceeds its assets,the creditors have the right to get their loan recovered from any partner/s either collectively or individually.

(2) No Separate Individuuality:The existense of the partnership cannot be separated from the partners.This means that all the contracts connected with the firm are also applicable to the partners individually as well as collectively.

(3) Utmost Good Faith:Absolute faith among the partners is the foundation of any partnership.In absense of this chracterstic there is no justification left for partnership.Good faith here simply means that all the partners should give every tupe of imformation affecting the firm to one another and,if necessary ,will consult other partners before taking any desicion and gave a true account of all the business deals done by any one of them.

(4) Restriction on Transfer of Interest:It is clear that the basis of partnership is mutual faith.Hence,no partner can transfer his interest in the firm without the approval of all the other partners.All the remaining partners will be willing to accept the new partner only when they find him trustworthy. 

Merits Of Partnership

(1) Easy Formation:There is no need to observe any legal formalities for the establishment of partnership.For example,like the sole trade the registration of partnership firm is not compulsory.Hence,it can be easily formed.

(2) Balanced Decision:Partnership organisation is a group of people with different qualities and whatever deicisions are taken in it are based on the consultations among all the partners.In this way every business decision happens to be balanced.

(3) More Financial Resources:The sole trade suffers from the demerit of lack of capital but the partnership business is free from this drawback.The financial resources pooled by many partners assume the form of enormous capital.

(4) Division Of Risk:Unlike the sole trade,the entire burden in case of loss does not fall on any single individual but gets divided among many persons.Hence,this is a useful system for business with greater risks.

This is enough for this airticle.In next airticle we will learn more about partnership.

Thanks For Reading!!!
-Sujal Juneja
(Juneja Technology)

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