PARTNERSHIP

PARTNERSHIP

The partnership business tries to reduce the defects of sole trading and Joint Hindu Family Business.  In a partnership business two or more persons combine their skills, experience and capital. The persons organising partnership business are known as partners.

A partnership is defined as “ the relationship between persons who have agreed to share profits of a business carried on by all or any one of them acting for all ”.

Characteristics of Partnership

{  Relation between two or more  : minimum members required for starting this business is 2, maximum 10 in banking and 20 in other business.

{  Agreement : it starts based on a oral or written agreement. It is known as Partnership Deed.

{  Business : the agreement is to do lawful business and cannot form charitable institution.

{  Sharing profits : profit or loss share as per agreement.

{  Business is carried on by all or any of them acting for all.

{  Unlimited liability : liability of each partner is unlimited.

{  No separate legal existence : a firm has no separate existence apart from the partners.

{  Utmost Good Faith : partners should disclose all material facts and present true accounts to one another.

{  Transfer of Interest : no chance to transfer interest of one partner to another in the firm.

{  Implied authority : all partners should follow the laws of organisation.

Types of Partnership

1.    General or Ordinary Partnership : The liability of all partners is unlimited. On the basis of duration it is divided into two type ;

a.   Particular Partnership : partnerships formed for the completion of a particular purpose for a fixed period.

b.   Partnership at Will : in this type the duration of the partnership will not be fixed in advance.

2.    Limited partnership : in limited partnership the liability of the partners is limited. But this type is not allow.ed in India.

Kinds of Partners

1.    Active or Working Partner : A partner who will contribute capital and take active participation in day to day affairs.

2.    Sleeping or Dormant Partner : the partner who does not contribute any active participation in business activities.

3.    Nominal Partner or Ostensible Partner : a person who do not contribute capital towards the organisation but his reputation will be beneficial to the firm.

4.   Partner by Estoppel :  is a person who by his behaviour or words gives an impression to the third parties that he is a partner.

5.    Partner by Holding Out : a person may be represented as a partner to the public by others.

6.   Partner in Profit Only : with a special agreement a person may be admitted to share only profits.

7.    Sub – partner : an outsider appointed by a partner as his agent with a share in the profits.

Minor as a Partner

          Section 30 of the Indian Partnership Act , allows a minor to be admitted as partner . the liability of a minor partner is limited. He  has the following rights ;

a.   He has the right to share the profits and properties of the firm.

b.   He can check the accounts of the firm.

c.    He can sue the partners for the payment of his share of profits.

Partnership Deed

It is the written agreement by partners. It may be oral or written. It is also known as Articles of Partnership. It may contains the following ;

a.   Name of the firm, address and name of partners.

b.   The term and duration of partnership and its objectives.

c.    The amount of capital contributed.

d.   Profit sharing ratio.

e.    The amount which can be withdrawn by each partner.

f.    Management of the business

g.   Amount of salary paid to partners.

h.   The right and duties of partners.

i.     Preparation of accounts of the firm.

j.     Arrangement for audit

k.   Rate of interest on the capitals.

l.     Details of division of work among partners.

m. Method of valuation of Goodwill on Admission, retirement an death of a partner.

n.   Provisions regarding admission , death and retirement of a partner.

o.    Settlement of disputes.

p.   Any other important matters.

Advantages of Partnership

1.    Easy of Formation : formation of partnership is easy.

2.    Larger resources : helps to collect more amount of capital through different partners.

3.    Efficient Management : through skilled and experienced two or more persons management of the firm is effective.

4.   Division of labour : division of work is possible between partners.

5.    Prompt and balanced decisions : for taking decisions all are meeting at a time.

6.   Greater Interest : equality in sharing of profit or loss makes them greater interested.

7.    More Credit Facilities : it can obtain more credit facilities from money lenders, financial institutions etc.

8.   Flexibility : easy to change according to the conditions of the society.

9.   Protection of minority interest : each partners get opportunity for expressing their views.

10. Simple Dissolution : it is easy to dissolve partnership

11.  Maintenance of Business secrets : no necessary to publish their accounts.

12.  Less Controls : govt. control over partnership is very low.