A partnership is a business format where two or more individual decides to come together to start a business and work as partners, share profit and losses, and carry equal liabilities. In partnership, the company is managed by one person or by everyone. All the features of partnerships, roles and responsibilities are recorded in a document which is known as partnership deed.
Features of Partnership
There are many features of partnership. However, the top 10 features are given below.
- Two or More Persons: To start a partnership business, at least two persons should come together. Under The Partnership Act, 1932, there is no maximum number on the number of partners. But, under the Companies Act, 1956, it is mentioned that the partnership or association should not exceed more than ten individuals in the banking sector.
- Agreement: A partnership business starts through an agreement between individuals through oral, written or implied.
- Lawful Business: All the partners can only conduct legally activities.
- Registration: For a firm, it is not compulsory to enrol themselves under the partnership act. However, if the firm is not recorded, there are few legal advantages that they cannot have such as (i) they cannot take legal action on any other parties for claims or settlement and (ii) in a state of conflict between partners, no legal settlements through a court of law.
- Profit-Sharing: In the partnership agreement, all the partners share, and profit and loss sharing ratio must be specified clearly.
- Agency Relation: This indicates each partner is representative of the firm, act as an agent and responsible for a business’s operation. One partner on behalf of the rest of the partners, can supervise or take actions.
- Unlimited Liability: Each partner is mutually and individually responsible for all the activities of the partnership firm.
- No Separate Legal Entity: Since the firm does not have its own identity, it gets terminated in case of bankruptcy, death, or illness of anyone partners.
- Transfer of Interest: No partner can transfer anything of his interest from the firm to outsiders unless other partners agree unitedly.
- Mutual Trust and Confidence: A partnership firm is built with understanding, confidence, and mutual trust. So, each partner should act for the interest of all.
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