0"Partnership is the relation between persons who agreed to share the profits af a business carried on by all or any of them acting for all" -(sec 4, Indian Partnership Act, 1932)
The individual who agree to form partnership are called partners and collectively they are called firm. The name under which they operate business is called firm name. Parnership firm is regulated by Indian Partnership Act, 1932 which puts no maximum limit on the number of partners, however Indian Companies Act ,2013 puts a limit of maximum 50 partners. In case if the no of partners exceeds 50, it will no more be considered as partnership firm as per Rule no.10 of Companies (miscellaneous) Rule, 2014 of Indian Companies Act,and shall be illegal.
Features:
- It is association of two or more person.
- There must be an agreement which may or may not be written. Written agreement is more prevelant and acceptable form of agreement and is called Partnership deed.
- It must have a business motive to be called as partnership firm. Mere joint grouping of person for any other reason like sharing the property or so is not partnership.
- Partners must agree to share profit or loss as per deed or agreement. In the absence of deed partners will share profit/loss equally. However it is not essential that all the partners will share the loss equally. Sometimes partnership deed may provide a provision where a partner is exempted to share the loss.
- A partnership firm may be carried by all or any one of the partner on behalf of all.
Why Partnership form of business emerged?
Limitations of Sole proprietorship form of business led to the emergence of partnership form of business.
Sole proprietorship form of business is the oldest and simplest form of business where there is one man control and management and where the whole investment is made my only one person. There are following limitations of sole proprietorship form of business which led to the emergence of partnership form of business:
- Limited capital
- Limited managerial skills
- Limited risk taking capacity.
