Characteristics of Partnership firm

 

A partnership is defined as an association of individuals competent to enter into contracts, who agree to carry on a lawful business in common to earn and share profits. The persons who are the owners of a partnership are individually called ‘Partners’ and collectively called a ‘Firm’. The name under which the partnership is formed is called a ‘Firm name’.

“Partnership is the relationship between the persons, who have agreed to share profits of a business, carried on by all or any of them, acting for all.”  --Section 4 of the Indian Partnership Act, 1932

ð  CHARACTERISTICS OF PARTNERSHIP FIRM

The following are the features of a partnership firm:

1.     Agreement or contractual relationship: A partnership is always a result of a written contract between the partners. It is also advisable to get the partnership registered with the Registrar of Firm of the concerned state.

2.     Agreement to carry on business: A partnership is formed to carry out a particular business. The term ‘business’ includes every lawful trade, occupation or profession which, if successful, will result in profit or gain. Thus, a partnership firm cannot carry a business that has been forbidden by the law.

3.     Profit-sharing: The agreement to form a partnership business includes the condition that profits of the business will be shared among the partners.

4.     No legal status: A partnership firm has no separate legal status of its own apart from its partners. It is purely a personal organization. Although a firm can be registered, the law does not give it a separate legal status.

5.     Unlimited liability: All the partners of a partnership firm must have unlimited liability. In case of insolvency or bankruptcy of a firm, if the business assets are not sufficient to pay off the business liabilities and the creditors, even the partners’ personal property can be utilized to pay off such debts.

6.     Mutual trust and confidence: The liability of partners in a partnership firm is unlimited. Hence, maintenance of utmost food faith by every partner is the most important requirement for a partnership firm to last long. The partners must disclose all the information and render true accounts to each other in the course of the business of the firm.

7.     Non-transferability of interest: The interest of the partner, whether monetary or otherwise in a partnership firm cannot be transferred to some other person without the consent of the other partners.

8.     Existence of Business: An association can become a partnership firm only when it is meant to do some kind of business for profit. The business must also be legal, i.e., it must be within the limits of the law.

9.     Principal-agent relationship: Every partner is a principal to and an agent of every other partner. This principle of mutual agency is fundamental in a partnership. In the absence of such a mutual agency, mere sharing of profits will not make them partners.

10.  Dissolution: A partnership firm can be dissolved at any time if all the partners of the firm agree to do so. Unforeseen events such as death, insolvency or insanity of one of the partners and even the court order can also lead to the dissolution of the firm.