8 Essential Features of Partnership | You Should Know

Meaning of Partnership

The need for a partnership firm form of organization arose from the limitations of a sole proprietorship. With the expansion of business, it became necessary for a group of persons to join hands together and supply the necessary capital and skills. A person may possess exceptional business ability but no capital; he can have a financing partner.

A financier may need a managerial expert as well as a technical expert and all of them may combine to set up a business with common ownership and management. Thus, partnership organizations have grown out of necessity to arrange more capital; provide better management and control, take advantage of a high degree of specialization and division of labor, and share the risks.

Section 4 of the Indian Partnership Act of 1932 defines partnership as “the relation between persons who have agreed to share profits of a business carried on by all or any of them acting for all”. Owners of the partnership business are individually called “partners” and collectively called a “firm”.

The name under which the business is carried on is known as the “firm name”. The terms and conditions of the partnership are contained in the partnership agreement known as the “Partnership Deed”.

Features of Partnership

Based on the above discussion, we can now list the main features of partnership form of business ownership/organization in a more orderly manner as follows:

More Persons

As against sole proprietorship, there should be at least two persons subject to a maximum of ten persons for a banking business and twenty for a non-banking business to form a partnership firm.

Profit and Loss Sharing

There is an agreement among the partners to share the profits earned and losses incurred in partnership business.

Contractual Relationship

A partnership is formed by an agreement–oral or written among the partners.

Existence of Lawful Business

A partnership is formed to carry on some lawful business and share its profits or losses. If the purpose is to carry out some charitable works, for example, it is not regarded as a partnership.

Utmost Good Faith and Honesty

A partnership business solely rests on utmost good faith and trust among the partners.

Unlimited Liability

Like sole proprietorship, each partner has unlimited liability in the firm. This means that if the assets of the partnership firm fall short of meeting the firm’s obligations, the partner’s private assets will also be used for the purpose.

Restrictions on Transfer of Share

No partner can transfer his share to any outside person without seeking the consent of all other partners.

Principal-Agent Relationship

The partnership firm may be carried on by all partners or any of them acting for all. While dealing with the firm’s transactions, each partner is entitled to represent the firm and other partners. In this way, a partner is an agent of the firm and of the other partners.

FAQs Section

What are the features of partnership?

The following are the features of partnership:

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