Partnership

In India, partnership organization is formed and managed by Indian Partnership Act, 1932.

Section 4 of Partnership Act 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.

Minimum Requirement:- Minimum of 2 persons are required to form a partnership and maximum of 10 persons in case of banking and 20 in case of others

Features of Partnership

  • The relation of partners is based on the contract.
  • At least 2 persons are required for the formation of partnership firm
  • There must be some undertaking of business.
  • The objective must be to earn profits and share among partners.
  • Law of agency applies
  • Partner's liability is unlimited.
  • Mutual trust and confidence is the basis of partnership.
  • Every partner can be a principal or agent of other partners during the course of Business.
  • Consensus i.e. mutual consent is required for all important decisions.
  • Restriction on transfer of share.
  • No relation between contribution of capital and share of profits.
  • Life span of partnership depends upon the will of partners.

Benefits of Partnership

  • Formation of partnership is easy as it does not involve too many legal formalities.
  • Flexibility in the operations of the business.
  • Registration of partnership form of organization is not compulsory as in the case of company.
  • All major decisions are taken by mutual trust, which results in better decision making.
  • Sharing of risk helps in formation of capital.
  • Relation of effort and reward.
  • Unlimited liability helps in more credit worthiness.
  • It protects the interest of minority as mutual consent i.e. consensus is required to take all the major decisions.
  • Easy to maintain secrecy as partnership firm is not under an obligation to disclose its annual accounts.
  • No legal formalities for dissolution.

Limitations of Partnership

  • Unlimited liability increases the risk; this hinders the growth of business.
  • Limited resources for generating capital.
  • No perpetual succession i.e. sudden death or retirement of any one of the partners dissolves the partnership.
  • Lack of good faith and confidence among partners causes great limitations.
  • No transfer of shares.
  • Burden of law of agency.
  • Due to non-disclosure of accounts there is always a lack of public confidence

Suitability

  • For service industry:- Accounting, Medical, Legal, Transportation, Warehousing etc.
  • Medium enterprises for distribution of profits.

Partnership - Key Requirement

  • Partners
  • Capital Contribution
  • Registered Office
  • Partnership Deed

Registration Flowchart

  • Pooling of partners IDEA
  • Business selection
  • Mutual understanding on conditions of agreement
  • Preparation of Partnership Deed
  • Partnership deed on Stamp paper and Drafting it
  • Signature of partners on Deed and submitting it to "Registrar of Firms" along with registration form
  • Commence Business get subsequent registrations