Features of Partnership Firms
Posted Date: 15-Aug-2010
Mohammed Julfekar Haider
This article describes about the features and characteristics of Partnership Firms.
The features of partnership firms are described in brief as follows:-
Agreement is the base of partnership. Without agreement there cannot be partnership. The partnership comes into existence by an agreement or contract (oral or written). The purpose of agreement should be for business & profit. Partnership is result of agreement but not by birth or any other relation. The agreement may be oral or written. But it is advisable to have written agreement because it has legal importance & it can be produced as evidence in the court of law to settle the dispute which may take place among the partners in the future.
(2) Sharing of Profits:
The main object of partnership is to make profit & to share these profit either equally or as per agreement. If agreement is silent then they share profit equally as provided in the "Indian Partnership Act, 1932". The non profit making organization cannot be called as partnership.
(3) Presence of Lawful Business:
The business of the partnership firm should be for profit making & also it should be as per the law of land. A partnership firm cannot perform charitable activities.
(4) Number of Partners:
The single individual cannot start partnership. There must be at least two or more persons to start a partnership business. According to Indian Partnership Act, 1932, a partnership firm running 'Banking' business require minimum two members & it can have maximum ten members and a partnership firm running 'Non Banking / General' business cannot have more than twenty members.
(5) Common (Joint) Management:
All partners of partnership can take active part in the management. It means partnership has common management. But practically it is not possible & convenient. Therefore it is managed by one or two partners on behalf of all other partners.
(6) Agency Relation:
The partners of partnership firm acts in double capacity i.e. as a Principal & as an Agent. He can take part in the management, he can inspect books of accounts, he can share profits and losses, etc. Every partner has a right to deal with outsiders in the capacity of the principal & to other partners, every partner is an agent.
(7) Unlimited Liability:
In India all partnership firms are general partnerships & the liability of every partner is unlimited. In other words the liability of each and every partner is joint several and unlimited i.e. all partners are collectively responsible for the payments of liabilities of the firm & even their personal property can be utilized for recovery of debts of the firm.
(8) No Transfer of Interest (Ownership):
In partnership firm, the partners cannot transfer his interest to any other person or to any legal representative as per his own wish i.e. without the consent of other partners. There is restriction on admission & retirement of any partner. Any changes in partners are done as per the agreement, and or with the consent of all partners.
(9) Mutual Trust:
It means the trust and confidence of partners in each other. Each partner has to work in the best interest of his firm. He must get full confidence & good faith of his partners. He should not make any secret profit & must disclose all the information which is directly or indirectly related to the business.
(10) Team Spirit:
Team spirit means co-operation & co-ordination with each other. There must be co-operation & co-ordination among all the partners. Each partner is the trustee of other partner. He must give true account of all his dealings in the partnership.
The partnership can be easily dissolved at any time if the partners agree to do so. It gets dissolved automatically, in case of death, insolvency or insanity of any of the partner. It gets dissolved if all the partners are declared insolvent or they resign from the partnership.
The registration of partnership firm is not compulsory. The partners may register the firm with the registrar of firms of the state. However, in the state of Maharashtra, registration of partnership is compulsory. The partners & the firm are benefited by registration.
In India partnership business is governed as per the provision of Indian Partnership Act, 1932.
(14) Absence of Legal Status:
Partnership is a personal organization. It has no separate legal status. The firm, the partners & the business are all inter – related.
(15) Implied Authority:
In a partnership each partner has implied authority to represent the firm and bind it by his acts. Due to implied authority sometime, sincere partners have to suffer a loss as they are held liable for hasty decisions of the insincere partners.
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