Partnership :Business System

Partnership is an association of two or more persons who pool their financial
and managerial resources and agree to carry on a business, and share its profit.
The persons who form a partnership are individually known as partners and
collectively a firm or partnership firm.
Act, 1932 which defines partnership as ―the relation between persons who have
agreed to share the profits of the business carried on by all or any of them acting
for all‖.

CHARACTERISTICS OF PARTNERSHIP FORM OF BUSINESS
ORGANISATION:
Based on the definition of partnership as given above, the various
characteristics of partnership form of business organisation, can be summarised
as follows:
(a) Two or More Persons: To form a partnership firm atleast two persons are
required. The maximum limit on the number of persons is ten for banking
business and 20 for other businesses. If the number exceeds the above limit, the
partnership becomes illegal and the relationship among them cannot be called
partnership.
(b) Contractual Relationship: Partnership is created by an agreement among
the persons who have agreed to join hands. Such persons must be competent to
contract. Thus, minors, lunatics and insolvent persons are not eligible to become
the partners. However, a minor can be admitted to the benefits of partnership
firm i.e., he can have share in the profits without any obligation for losses.
(c) Sharing Profits and Business: There must be an agreement among the
partners to share the profits and losses of the business of the partnership firm. If
two or more persons share the income of jointly owned property, it is not
regarded as partnership.
(d) Existence of Lawful Business: The business of which the persons have
agreed to share the profit must be lawful. Any agreement to indulge in
smuggling, black marketing etc. cannot be called partnership business in the
eyes of law.
(e) Principal Agent Relationship: There must be an agency relationship
between the partners. Every partner is the principal as well as the agent of the
firm. When a partner deals with other parties he/she acts as an agent of other
partners, and at the same time the other partners become the principal.
(f) Unlimited Liability: The partners of the firm have unlimited liability. They
are jointly as well as individually liable for the debts and obligations of the
firms. If the assets of the firm are insufficient to meet the firm‘s liabilities, the
personal properties of the partners can also be utilised for this purpose.
However, the liability of a minor partner is limited to the extent of his share in
the profits.

(g) Voluntary Registration:
The registration of partnership firm is not compulsory. But an unregistered firm
suffers from some limitations which makes it virtually compulsory to be
registered. Following are the limitations of an unregistered firm.
(i) The firm cannot sue outsiders, although the outsiders can sue it.
(ii) In case of any dispute among the partners, it is not possible to settle the
dispute through court of law.
(iii) The firm cannot claim adjustments for amount payable to, or receivable
from, any other parties.