In India, partnership organization is formed and managed by Indian Partnership Act, 1932.
Section 4 of Partnership Act defines partnership as the relation between persons who have agreed to share profits of a business carried on by all or any of them acting for all.
Minimum Requirement:- Minimum of 2 persons are required to form a partnership and maximum of 10 persons in case of banking and 20 in case of others
Features of Partnership
- The relation of partners is based on the contract.
- At least 2 persons are required for the formation of partnership firm
- There must be some undertaking of business.
- The objective must be to earn profits and share among partners.
- Law of agency applies
- Partner's liability is unlimited.
- Mutual trust and confidence is the basis of partnership.
- Every partner can be a principal or agent of other partners during the course of Business.
- Consensus i.e. mutual consent is required for all important decisions.
- Restriction on transfer of share.
- No relation between contribution of capital and share of profits.
- Life span of partnership depends upon the will of partners.
Benefits of Partnership
- Formation of partnership is easy as it does not involve too many legal formalities.
- Flexibility in the operations of the business.
- Registration of partnership form of organization is not compulsory as in the case of company.
- All major decisions are taken by mutual trust, which results in better decision making.
- Sharing of risk helps in formation of capital.
- Relation of effort and reward.
- Unlimited liability helps in more credit worthiness.
- It protects the interest of minority as mutual consent i.e. consensus is required to take all the major decisions.
- Easy to maintain secrecy as partnership firm is not under an obligation to disclose its annual accounts.
- No legal formalities for dissolution.
Limitations of Partnership
- Unlimited liability increases the risk; this hinders the growth of business.
- Limited resources for generating capital.
- No perpetual succession i.e. sudden death or retirement of any one of the partners dissolves the partnership.
- Lack of good faith and confidence among partners causes great limitations.
- No transfer of shares.
- Burden of law of agency.
- Due to non-disclosure of accounts there is always a lack of public confidence
- For service industry:- Accounting, Medical, Legal, Transportation, Warehousing etc.
- Medium enterprises for distribution of profits.
Partnership - Key Requirement
- Capital Contribution
- Registered Office
- Partnership Deed
- Pooling of partners IDEA
- Business selection
- Mutual understanding on conditions of agreement
- Preparation of Partnership Deed
- Partnership deed on Stamp paper and Drafting it
- Signature of partners on Deed and submitting it to "Registrar of Firms" along with registration form
- Commence Business get subsequent registrations