define a partnership from and explain the features
Answers
- Two or More Persons: ...
- Contract or Agreement: ...
- Lawful Business: ...
- Sharing of Profits and Losses: ...
- Liability: ...
- Ownership and Control: ...
- Mutual Trust and Confidence: ...
- Restriction on Transfer of Interes
ANSWER
#Definition of Partnership
The Indian Partnership Act, 1932 governs partnership forms of business in India. Section 4 of this Act defines a partnership as the relationship between partners who have agreed to share the firm’s profits carried on by all or any one of them acting for all.
A bare reading of this definition shows that a partnership requires partners who share their firm’s profits amongst each other. Further, the firm’s business must be carried on either by all of them together or by one of them acting on behalf of others. The members of such a business are individually called partners and collectively, a firm.
Definition of Partnership
Considering the definition of partnership we just learned, let us now take a look at some features of partnerships.
1)Features of Partnerships
A typical partnership form of business will always have the following basic features.
1. Agreement
The definition of the partnership itself makes it clear that there must exist an agreement between partners to work together and share profits amongst them. Partners may make such an agreement either orally or in writing. If it exists in written form, we refer to such an agreement as a partnership deed.
Such written or oral agreement between partners must ensure that they are clear on their status as partners of their firm. This includes details pertaining to their work as partners, the firm’s businesses, their profit and loss sharing ratio, etc
2. Business
The existence of a business is an essential feature of partnerships. There can be no formal partnership under the Partnership Act if the partners carry out charitable activities. Section 2 says that business includes any trade, profession or occupation. What is essential is that the firm must work with the intention of earning profits.
3. Profit sharing
A partnership does not exist unless partners share the profits of their firm. A person who works for the partnership business without having a share in its profits may be an employee, but not a partner. It is noteworthy to point out that the law only requires the sharing of profits amongst partners. Consequently, all partners need not share losses as well.
4. Principal-agency relationship
A partnership firm’s business may be conducted either by all partners together or by one partner acting on behalf of all others. We commonly refer to such a peculiar relationship between partners as the principle of agency.
This principle means that all partners are agents for each other. The decisions of one partner taken in the ordinary course of business will bind other partners as well. All partners are liable for acts of the firm individually and severally.
Now that we are clear with the definition of partnership and its peculiar features, let’s test what we have learned.