The law of partnership is contained in the partnership act, 1932, which came into force on 1st October 1932. “Partnership is the relationship between persons who have agreed to share the profits of a business carried on by all or any one of them acting for all.” OR “Partnership is a voluntary association of two or more persons who contribute money, property, time, care or skill, to carry on as co-owners, a lawful business for profit and to share profits and losses of the business”. In partnership there are minimum two members and maximum twenty.
Following are the characteristics of partnership.
1. Legal entity:
Partnership has no a separate legal entity. It means that the firm and the partners are not separate from one another. The liabilities of the firm are the liabilities of the partners.
A partnership is the result of an agreement between persons. The agreement may be oral or written.
3. No of partners:
If the business is registered under partnership act, 1932 there are minimum two members in partnership and maximum twenty.
4. Existence of business:
The life of the business depends upon the agreement and the willingness of the partners.
5. Sharing of profits:
The agreement between the persons must be to share the profits of a business. The profit will be distributed among the partners according to their agreement.
6. Unlimited liabilities:
The liabilities are unlimited in case of firm’s debts. All partners are responsible for the debts of the firm.
Generally all the partners supply the capital to the firm. It is not necessary to contribute equal capital. It is contributed according to the agreement.
Every partner can take part in the management of the business of the firm. Generally, the work is divided among the partners according to the experience and knowledge.
It is formed by an agreement; its control depends on the terms and conditions of the agreement.
10. Transfer of interest:
A partner can transfer his share in the partnership to an outsider without the permission of any partner.
It can continue at the will of the partners. It comes to an end if any partner retires, dies, or become insolvent. However, if the remaining partners agree to continue the business they can.
Following are the advantages of the partnership
1. Ease formation:
It is ease to form as compared with company. Because same like sole proprietorship it has no legal formalities are required for the formation. Even the registration of the firm is not compulsory.
2. Credit standing:
In it the liabilities of the partners are unlimited means in case of loss the personal properties of all the partners are available to meet the claims of the creditors.
3. Large capital:
It has large capital as compared with sole proprietorship because more than one person contributes the capital.
4. Better management:
In sole proprietorship, it is difficult to manage all the affairs effectively. But in partnership the partners may perform their duties for which they suitable.
5. Skilled person:
As in partnership there is more than one person who looks after the business. They manage the business according to their skills. Means a person has managerial abilities of marketing he will do marketing and if other is good in finance he will manage finance. So the no of skilled persons are more than sole proprietorship.
6. Profit incentive:
The partners as per agreement share the profits. They are encouraged to do more work to earn more profit. Higher will be the partner’s share.
7. Business secrecy:
The partners can keep the business secrets among themselves because the firm is not required by law to publish its profit and loss accounts and balance sheet.
8. Quick decision:
As the partners meet so often. That is why; the decisions regarding policies are quickly made.
9. Public relations:
The partners look after the business personally. So they can easily develop good relations with the employees, customers and other, which are beneficial for the firm.
A partnership is free from legal restrictions. It is formed by an agreement so the business can be changed easily.
11. Personal interest:
As all the members invested their capital in the business so they will try their best to increase the profits of the business. For this they will automatically give their attention towards the business.
12. Expansion of business:
The firm can be move to the company easily after fulfilling the legal activities.
13. Less chances of fraud:
In partnership there is less chance of fraud because all the partners have their capital in the business and involvement in the business and have a check and balance all the time.
14. Minimum legal restrictions:
In partnership there are minimum legal restrictions. So, any time the partners can change their agreements nature of the business etc.
15. Personal supervision:
The partners look after the business personally. The staff can perform more effectively when the partners show their interest in management.
16. Sharing of risk:
If the business faces any kind of risk the partners will share it. All the partners share the losses.
17. Suitable for big business:
The partnership is more suitable for business because the partners can generate more capital by increasing partners or by increasing capital. A registered firm can become private limited company easily after fulfilling the requirements.
The dissolution of partnership is very easy. It can be dissolute by the mutual consult of partners. It can be dissolute in case of any partner’s death or in case of insolvency of each partner.
Following are the disadvantages of partnership.
1. Unlimited liabilities:
The liabilities of partners are unlimited in partnership. The creditors have a right to sale their personal property to take back their interest and principle amount.
2. Limited life:
The life of partnership is limited because in case of any partner’s death or insolvency it can be disturbed.
3. Lack of public confidence:
The public has less confidence in partnership firms because any time agreement can be dissolute.
4. Risk of loss:
There are more chances of risk in partnership because of the negligence of any partner can fall the firm into any kind of loss.
5. Lack of resources:
As the size of the business is not so big because, of limited capital and limited capital leads to limited resources.
6. Possibilities of disagreement:
In partnership there are more chances of disagreement. The reason is that any partner can insolvent or died any time. The agreement can be dissolute.
7. Lack of authority:
There is always lack of authority in partnership because there is no boss all partners are the owners of the firm.
8. Risk of dissolution:
There is always a risk of dissolution. It can be dissolute by the mutual consult of partners. It can be dissolute in case of any partner’s death or in case of insolvency of each partner.
9. Lack of harmony:
As every partner has equal authority in the management, so everyone try to impose his own decision and this leads to misunderstanding and dispute.
10. Loss of opportunities:
The partnership business may miss the business opportunities due to delay in decision-making and differences among the partners.
Following are the duties of partners in partnership.
1. True services:
The first and the most important duty of each partner is to provide true services to the business. He should not be selfish. All his efforts should lead towards the betterment of the business.
It is also the duty of each partner to show his confidence in the business rather than to depress the other partners by lacking of confidence.
3. Routine loss:
It is the duty of all partners to bear routine loss with other partners.
4. Negligence loss:
It is the duty of all partners to bear negligence loss with other partners.
5. Fraud loss:
It is the duty of all partners to bear fraud loss with other partners.
It is the duty of all partners to receive their salary according to their agreement.
It is the duty of the individual partner to provide the relevant information about the internal and external affairs of the firms.
8. Business secrecy:
It is also the duty of each partner to keep the secrets of the business inside. It is the duty to not give any information of the business to anyone.
9. Take part in management:
It is the duty of the partners to take part in management of the business to control the business affairs.
10. Duty to make accounts:
It also the duty of the partners to make the accounts of the firm in proper manners or keep in touch with the accounts of the business
Following are the rights of partners in partnership:
1. Right to use property:
Every partner has right to use the property of the business equally. He can use all the assets of the business for business purpose.
2. Right to share loss:
He has a right to share the loss that placed in the business due to any negligence or due to fraud.
3. Right to share profit:
If firm gain profits, he has right to receive his portion of profit, which will mentioned in the agreement of the partnership.
4. Right to retire:
All the partners have right to retire according to provisions of agreement or with the consent (permission) of all partners.
5. Right to charge interest on capital:
Every partner has right to charge interest on capital contributed by him. Interest shall be paid only out of profits.
6. Right to receive dividend on investment:
If firm invested some portion of money in to a listed company every partner has right to receive dividend on that investment.
7. Right to take part in management:
All the partners have equal right to take part in the business affairs regarding management.
8. Right to express opinion:
Every partner has a right to give opinion for the betterment of the business and has a right to give new ideas about any innovative thing.
9. Right to use powers:
Partners have right to use the powers of the business. They can use business cards, certificates etc.
10. Right to receive to salary:
All the partners have right to receive salary if mentioned in the agreement of the partnership.
11. Right to inspect books of accounts:
Every partner has right to inspect books o accounts to check the profit or loss account, cash flows, balance sheet etc.
12. Right to enforce:
They have right to enforce others on their point of view about the business.
® Liability to bear loss
® Liability to take profit
® Liability to take part in management
® Liability of business secrecy
® Liability to bear fraud loss
® Liability to bear routine loss
® Liability to provide information
Liability to pay salaries