According to the Section 4 of the Partnership Act, 1932 Partnership is an agreement between two or more persons who have agreed to share profits or losses of a business that will be carried by all or any one of them acting for all. Person who joined their hands to set up the business are called ‘partners individually and ‘firm’ collectively and the name under which they carry out their business is termed as ‘firm name’.
The following are the important characteristics of partnership.
(i) Two or More Persons: In order to form partnership, there should be at least two person coming together for a common goal In other words, the minimum number of partners in a firm can be two. There is however, a limit on their maximum number, if a firm is engaged in the banking business, it can have a maximum of ten partners while in case of any other business, the maximum number of partners can be twenty.
(ii) Partnership Deed: A partnership deed is an agreement among the partners which contains all the terms of the partnership. It generally contains the details about all the aspects affecting the relationship between the partners including the objective of business, contribution of capital by each partner, ratio in which the profits and the losses will be shared by the partners and entitlement of partners to interest on capital, interest on loan, etc.
(iii) Business: One of the important characteristics of a partnership is that it is formed to carry out a legal business. Partnership in case of illegal business is not valid.
(iv) Sharing of Profit: In case of a partnership the partners are suppose to share profit or loss on an agreed ratio or as per the provisions of the Partnership Act, 1932, as per which they will share profit equally.
(v) Liability: In the case of a partnership liability of partners are unlimited. If there is any obligation against the third party the partner will have to pay it out of his personal property.