Nature/ Features/ Characteristics of Partnership?

“Section 4 of the Indian Partnership Act 1932”
Partnership is the ‘relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all’.
Persons who have entered into partnership with one another are individually called ‘partners’ and collectively called ‘firm’. The name under which the business is carried is called the ‘firm’s name’.

Example :-

Channu and Mannu agrees to run a business called Channu Mannu enterprises and shares profits and losses equally.

Q :- Who are partners here?
A :- Channu and Manuu, Why because they have entered in to an agreement to form Channu and Manny enterprises.

Q :- What the name of the firm?
A : Channu and Mannu Enterprises.

Q : What is a firm here?
A : Channu + Mannu together will be called firm ( Partnership )

Q : Do they have separate legal entity?
A : No they don’t, if there is a loss, along with firm, they are individually liable too. A partnership firm has no separate legal entity, apart from the partners constituting it.

The essential features of partnership are

1. Two or More Persons: In order to form partnership, there should be at least two persons coming together for a common goal.

  • Minimum number – 2
  • Maximum number – 50

2. Agreement: Partnership is the result of an agreement between two or more persons to do business and share its profits and losses.
It can be :-

  • Oral agreement
  • Written agreement (Better to have a written one)

3. Business: The agreement should be to carry on some business. If there is no business but joint ownership of a property, it is called co-ownership.

4. Mutual Agency: The business of a partnership concern may be carried on by all the partners or any of them acting for all.

  • Every partner can participate in the business.
  • Their acts can bind other partners & also is bound by the acts of other partners, only with regard to business of the firm.

5. Sharing of Profit: The agreement between partners must be to share profits and losses of a business.

  • If some persons join hands for the purpose of some charitable activity, it will not be termed as partnership.
  • If some persons join hands for the purpose of sharing profits only, losses are assumed to be shared by them as well.

6. Liability of Partners: Each partner is liable jointly with all the other partners and also severally to the third party for all the acts of the firm done while he is a partner. Not only that the liability of a partner for acts of the firm is also unlimited. This implies that his private assets can also be used for paying off the firm’s debts. (Principal of Separate legal entity doesn’t apply )