PARTNERSHIP

A Partnership is a voluntary association of two or more persons who contribute money, property, time and skill to carry on business for profit and to share the profits of the business.

Characteristics or Features
Legal Entity A partnership has no separate legal entity apart from its members. It means that the partnership and partners are not separate from one another. The rights and liabilities of the firm are considered the rights and liabilities of the partners. If any of the partners dies, retires or becomes insane the partnership comes to an end. Agreement A partnership is a result of an agreement between two or more persons. An agreement may be written or oral. Only the persons who are competent to contract can form a partnership. Number of Partners At least two persons are required top form a partnership. There should be at least two and ma imum twenty partners. Existence of Business In order to form a partnership, the partners must agree to a carry on a certain business. If the purpose is something other than business, it cannot be called a partnership. Therefore when there is no business, there is no partnership. Sharing of Profits The agreement between the partners must be to share profits of a business. The profit will be distributed among the partners according to their agreement. If there is no agreement regarding the distribution of profit, it will be equally distributed among the partners. Mutual Agency The business must be carried on by all the partners or any of them acting for all the partners. !ach partner acts as an agent of the other partners of the firm. This means that the contract of agency e ists among partners.

Unlimited Liability The liability of all the partners is unlimited. All the partners are individually and collectively responsible for all the debts of the business. It means that if there is any loss and the business sources are insufficient to satisfy the claims of the creditors, the private assets of the partners can be sold to satisfy the claims of creditors. Capital "enerally, the capital for the partnership firm is provided by all the partners. It is not necessary that all the partners contribute equal amounts of capital. #apital is contributed according to the partnership agreement. Utmost aith A partnership is based on mutual confidence and trust of all the partners. The partners must be fair and honest with one another. They must disclose all facts and provide true accounts relating to the business to each other. Management According to law, every partner can participate in the conduct management of the partnership firm. $sually the management which is divided among the partners according to their e perience, ability and knowledge. Control %ince a partnership is formed by an agreement, its control depends on the terms of the agreement. &here all the partners take an active part in the conduct of the business, the control remains with all of them and ma'or decisions are taken with the consent of all the partners. !est of Partnership In order to determine the e istence of partnership, the following must be proved( ). *. +. ,. -. There must be an agreement among the persons to be held as partners. The agreement must be for doing some business. The agreement must be to share the profits of the firm. There must be relationship of principal and agent among the partners. There must be an agreement to carry on the business by all or any of them acting for all.

Partners" Persons who have entered into partnership with one another are called individually partners. "enerally a partner is a person who has agreed to share the profits of the firm. irm" The persons who have entered into a partnership with one another are collectively called a form. irm#s name The name under which partners carry on their business is called the firm.s name. Ad$antages Easy ormation The partnership can be formed easily because no complicated legal formalities are required for formation. The registration of the form is not compulsory. The cost of formation of partnership is small and process can be completed quickly. Larger Capital There are more persons who can easily collect huge amounts of capital. If the present partners are not in a position to supply the needed capital, the amount can be borrowed. /oreover , the capital can also be increased by admitting new partners. Better Management The partners may perform those duties for which they are more suitable. In case of important matters all the partners can get together and decide. This insures more efficiency and increases profits. %igh Credit Standing The liability of all the members is also unlimited. It means in case of loss the personal assets of all the partners can be held liable to meet the claims of the creditors, so the financial institutions give loans without fear. More Participation All the partners work hard to make the partnership firm successful. They now that in case of failure of business, they will have to bear the loss. Therefore all partners participate in the business activities.

S&illed Employees In case of partnership, the resources of the firm are larger, so the services of educated, e perienced and skilled persons can be obtained. Public 'elations The partners personally look after the affairs of the business, so they develop good relations with the employees and customers and employees which are beneficial for the firm. 0irect contact with customers help to build trust and loyalty. lexibility A partnership is free from legal restrictions. It is formed by an agreement, so the business can be changed easily. Its ob'ects, membership and capital may be easily ad'usted according to changes in the business conditions. (ecision Ma&ing The interest of minority partner is protected by law. In policy matters all partners must agree. In ordinary affairs, a dissatisfied partner may withdraw his share and dissolve the firm. Thus the minority partner en'oys the right of veto. In fact, the law gives each partner the right to be heard and consulted. Protection of minor partner In partnership, the interest of minor partner is properly protected. A minor partner en'oys special protection in a partnership firm. 1is liability is limited to the e tent of his capital contribution. The protection is beneficial as the death or insanity of partner does not dissolve the firm if in his place his minor successor is taken as a partner. )uic& (ecision In partnership, quick decisions can be taken regarding business policies which enable a firm to take advantage of changing market conditions. The decisions are to be taken quickly as fewer persons are consulted. Thus the risk of missing out on business opportunities from delay in decision making is lesser in partnership as compared to a company. Sharing of 'is& A partnership firm en'oys the advantage of sharing risk. !ach partner shares risk according to the terms established in the partnership agreement. The losses suffered by the firm are shared by all partners.

Possibility of Expansion A partnership is fle ible in its business operations and e pansion of business is easy. 2irm can e pand its business because of its larger resources, favorable credit standing and managerial ability. Business Secrets The success of business depends on secrecy. Spirit of co*operation The success of a partnership firm depends on mutual trust, cooperation and confidence. Profits or losses of the firm are shared by the partners. (isad$antages