1. Partnership
2. Partnership
The Indian Partnership Act, 1932 defines partnership as “the relation between persons who have agreed to share the profit of the business carried on by all or any one of them acting for all.”
Features
1. Formation:-
For the formation of a partnership, agreement between partners is essential.
2. Liability:-
The partners of a firm have unlimited liability. The partners are jointly and individually liable for the payment of debts.
3. Risk bearing:
The profit or loss shall be shared among the partners equally or in agreed ratio.
4. Decision making and control:-
The activities of a partnership firm are managed through the joint efforts of all the partners.
5. Lack of Continuity:-
The retirement, death, insolvency, insanity etc of any partner brings the firm to an end.
6. Membership:-
There must be at least two persons to form a partnership. The maximum number of persons is ten in the banking business and twenty in non-banking business.
7. Mutual agency:-
In partnership, every partner is both an agent and a principal.
Merits of Partnership
1. Easy formation and closure:-
A partnership firm can be formed and closed easily without any legal formalities.
2. Balanced decision making:-
In partnership, decisions are taken by all partners. So they can take better decisions regarding their business.
3. Division of labour:-
Division of labour is possible in partnership firm. Duties can be assigned to different partners according to their ability.
4. Large funds:-
In a partnership, the capital is contributed by a number of partners. So they can start business on a large scale.
5. Sharing of risk:-
The risks involved in running a partnership firm are shared by all the partners. This reduces the anxiety, burden and stress on individual partners.
6. Secrecy:-
A partnership firm is not legally required to publish its accounts and submit its reports. Hence it can maintain confidentiality of information relating to its operations.
Limitations of Partnership
1. Unlimited liability:-
The partners of a firm have unlimited liability. The partners are jointly and individually liable for the payment of debts.
2. Limited resources:-
There is a restriction on the number of partners. Hence capital contributed by them is also limited.
3. Possibility of conflicts:-
Lack of mutual understanding and cooperation among partners may affect the smooth working of the partnership business.
4. Lack of continuity:-
The retirement, death, insolvency, insanity etc of any partner brings the firm to an end.
5. Lack of public confidence:-
A partnership firm is not legally required to publish its financial reports. As a result, the confidence of the public in partnership firms is generally low.
