Partnership Firm at a Glance
A Partnership Firm is a popular form of business constitution for businesses that are owned, managed and controlled by an Association of People for profit. Partnership firms are relatively easy to start are is prevalent amongst small and medium sized businesses in the unorganized sectors.
With the introduction of Partnership Firms in India, Partnership Firms are fast losing their prevalence due to the added advantages offered by a Partnership Firm.
Features of a Partnership
Formation/Contract
A partnership firm is not a separate legal entity. But according to the act, a firm must be formed via a legal agreement between all the partners. So a contract must be entered into to form a partnership firm. Its business activity must be lawful, and the motive should be one of profit. So two people forming an alliance to carry out charity and/or social work will not constitute a partnership. Similarly, a partnership contract to carry out illegal work, such as smuggling, is void as we ll.
Unlimited Liability
In a unique feature, all partners have unlimited liability in the business. The partners are all individually and jointly liable for the firm and the payment of all debts. This means that even personal assets of a partner can be liquidated to meet the debts of the firm. If the money is recovered from a single partner, he can, in turn, sue the other partners for their share of the debt as per the contract of the partnership.
Continuity
A partnership cannot carry out in perpetuity. The death or retirement or bankruptcy or insolvency or insanity of a partner will dissolve the partnership. The remaining partners may continue the partnership if they so choose, but a new contract must be drawn up. Also, the partnership of a father cannot be inherited by his son. If all the other partners agree, he can be added on as a new partner.
Number of Members
As we know that there should be a minimum of two members for a partnership. However, the maximum number will vary according to a few conditions. The Partnership Act itself is silent on this issue, but the Companies Act, 2013 provides clarity. For a banking business, the number of partners must not exceed ten. For a business of any other nature, the maximum number is twenty. If the number of partners increases it will become an illegal entity or association.
Mutual Agency
In a partnership, the business must be carried out by all the partners together. Or alternatively, it can be carried out by any of the partners (one or several) acting for all of them or on behalf of all of them. So this means every partner is an agent as well as the principal of the partnership.
Need Help To Grow Your Business?
Investment Expert will help you start your own company.
Get In TouchInnovative Tools for Investor
We employ a long-established strategy, sector-focused investing across all of our markets globally...
Learn More
