Partnership is defined as a relation between two or more persons who have agreed to share the profits of a business carried on by all of them or any of them acting for all. The owners of a partnership business are individually known as the "partners" and collectively as a "firm". Its main features are :-
- A partnership is easy to form as no cumbersome legal formalities are involved. Its registration is also not essential. However, if the firm is not registered, it will be deprived of certain legal benefits. The Registrar of Firms is responsible for registering partnership firms.
- The minimum number of partners must be two, while the maximum number can be 10 in case of banking business and 20 in all other types of business.
- The firm has no separate legal existence of its own i.e., the firm and the partners are one and the same in the eyes of law.
- In the absence of any agreement to the contrary, all partners have a right to participate in the activities of the business.
- Ownership of property usually carries with it the right of management. Every partner, therefore, has a right to share in the management of the business firm.
- Liability of the partners is unlimited. Legally, the partners are said to be jointly and severally liable for the liabilities of the firm. This means that if the assets and property of the firm is insufficient to meet the debts of the firm, the creditors can recover their loans from the personal property of the individual partners.
- Restrictions are there on the transfer of interest i.e. none of the partners can transfer his interest in the firm to any person(except to the existing partners) without the unanimous consent of all other partners.
- The firm has a limited span of life i.e. legally, the firm must be dissolved on the retirement, lunacy, bankruptcy, or death of any partner.
A partnership is formed by an agreement, which may be either written or oral. When the written agreement is duly stamped and registered, it is known as "Partnership Deed". Ordinarily, the rights, duties and liabilities of partners are laid down in the deed. But in the case where the deed does not specify the rights and obligations, the provisions of the THE INDIAN PARTNERSHIP ACT, 1932 will apply. The deed, generally contains the following particulars:-
- Name of the firm.
- Nature of the business to be carried out.
- Names of the partners.
- The town and the place where business will be carried on.
- The amount of capital to be contributed by each partner.
- Loans and advances by partners and the interest payable on them.
- The amount of drawings by each partner and the rate of interest allowed thereon.
- Duties and powers of each partner.
- Any other terms and conditions to run the business.
- Ease of formation
- Greater capital and credit resources
- Better judgement and more managerial abilities
- Absence of ultimate authority
- Liability for the actions of other partners
- Limited life
- Unlimited liability
Partnership is an appropriate form of ownership for medium sized business involving limited capital. This may include small scale industries, wholesale and retail trade; small service concerns like transport agencies, real estate brokers; professional firms like charted accountants, doctors' clinic, attorney or law firms etc.