What is partnership?

According to Indian Partnership Act 1932, partnership is the relation between persons who have agreed to share the profit of the business carried on by all or anyone of them acting for all.

It overcomes most of the limitations of Sole Proprietorship. These are: Limited finances Limited period of business organisation Limited managerial ability

Partnership deed It is an agreement made between partners containing the terms and conditions concerning partners. It is not compulsory to register a partnership firm but it is beneficial. Partnership deed contains information like Name of the firm Nature and location of business firm Duration of business Investment made by partners Profit and loss sharing ratios Duty of each partner Terms and conditions related to addition of new partner or retirement Interest on capital and drawings Method of solving disputed between partners

Partnership features Formation The partnership form of business organisation is governed by the Indian Partnership Act, 1932. It comes into existence through a legal agreement wherein the terms and conditions governing the relationship among the partners, sharing of profits and losses and the manner of conducting the business are specified. It may be pointed out that the business must be lawful and run with the motive of profit Lunatic : cannot become a partner Alien Enemy : cannot become a partner Alien Friend : can enter into contract Woman : Married or Unmarried can be a partner Insolvent : Cannot become a partner; ceases to be a partner from date on which order was passed by court Liability The partners of a firm have unlimited liability. Personal assets may be used for repaying debts in case the business assets are insufficient. Further, the partners are jointly and individually liable for payment of debts. Risk Bearing

Partnership features

Continuity
Partnership is characterised by lack of continuity of business since the death, retirement, insolvency or insanity of any partner can bring an end to the business.

Membership
The minimum number of members needed to start a partnership firm is two, while the maximum number, in case of banking industry is ten and in case of other businesses it is twenty.

Mutual Agency
The definition of partnership highlights the fact that it is a business carried on by all or any one of the partners acting for all. In other words, every partner is both an agent and a principal. He is an agent of other partners as he represents them and thereby binds them through his acts.

Demerits of Partnership Partnership deed contains information like: Name of the firm

Types of partnership Partnership at Will No provision in contract between the partners for Duration of Partnership Determination of Partnership If any partner gives notice of dissolution in writing, the partnership is dissolved

Particular Partnership A person may become a partner with another person in particular adventures or undertakings. On completion of such a venture, the partnership comes to an end

Partnership for a Fixed Term Duration is fixed Partnership comes to an end when the term expires. If Partners continue the business after the fixed period, it becomes partnership at will

Association of two or more persons Max. limit : 10 for banking; 20 for other business Result of an agreement Partnership relation based on Contract. Implied or Express (Oral or Written) Must carry on some business Trade, Occupation or Profession Share profits of the business Business is carried on by all or any one of them acting for all (mutual agency)

Types of partners Actual or Active Partner Engaged in actual conduct of the business His acts binds the firm and other partners Notice to be given in case of retirement Sleeping or Dormant Partner Does not take part in the conduct of business Contributes his share of capital and enjoys profits and losses Not known to outside world Not liable to third parties for the acts of the firm. Not required to give notice in case of retirement Nominal Partners No real interest in business, Does not contribute any capital, Lends his name only No share in profits but liable to third parties for all acts of the firm Partner in Profits only Shares the profits but not losses No interest in the management of the firm Liability for the acts of the firm is unlimited

Types of partners Partner by Estoppel or Holding Out Represents himself as a Partner, by words spoken or written or by conduct Liable as a partner if credit is given to the firm based on his representation. He cannot deny. If a partner does not give public notice and his name is still used in the business, he is also liable to third parties Deceased partner is an exception to this rule

During his Minority Rights Right to receive agreed share of profits and property Have access to and inspect and copy the accounts of the firm If share in profits is not given, can sue (can do if he wants to sever his connection) Liabilities Only to the extent of share in profits and properties (not personally liable

On Attaining Majority Within six months should give notice whether he is joining the partnership or not. If notice not given he shall become a partner

When a Minor elects to become a partner Rights Share remains the same Rights and Liabilities as that of a full fledged partner Rights will be the same till the date on which he becomes a partner Liabilities Liabilities will be the same till the date on which he becomes a partner Personally liable to third parties for all acts of the firm from the date of becoming a partner

When a Minor elects not to become a partner Rights Rights will be the same till the date of notice Entitled to sue for his share of property and profits Liabilities Liabilities will be the same till the date of notice His share of property and profits will not be liable for any acts of the firm after the date of notice

Conclusion Partnership deed contains information like: Name of the firm