Features of Partnership
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| Feature of Partnership |
1. Two or more
persons: In order to form a partnership minimum two persons are required
who are legally competent to enter into an agreement. However, the
number of persons must not exceed 20, and in case of banking businesses, it
must not exceed 10. It should be noted that if the number of persons exceed
above limit, the partnership becomes illegal and it cannot enter into a contact
with third party or file a legal suit.
2. Pertnership
agreement: Partnership is the outcome of an agreement between two or more
persons to do business and share its profit and losses in the agreed ratio. The
Partnership agreement may be written agreement or oral agreement. To avoid
litigation in future, it is advisable that the partners have a written agreement.
3. Business motive:
The main motive of the agreement is to do business. Join ownership of a
property will not be treated as a partnership.
For Example-: If Ram and Shyam jointly purchase some share of I.T.C
for investment purpose, they become the joint owner of the shares and not
partners. However, if they purchase such shares for the purpose of treading and
making profit, they will be treated as partners.
4. Limited Life:
The life of partnership is limited. Death, retirement, bankruptcy or
incapability of a partner may terminate a partnership. Any one of the business
can also terminate a partnership at any time.
5. Ultimate
Liability: The liability of the partnership is unlimited. A partner is both
jointly and severally liable to third parties. At any point of time, if the
assets of the partnership firm are not sufficient to pay it liabilities,
creditors may take action against the personal assets of any or all of the
partners.
6. Mutual agency:
Each partner is considered as an agent of the partnership firm capable of
transacting in the name of the partnership. In effect, any partner can bind the
other partner when acting the scope of the partnership activities.
7. Co-ownership of
profits: Every number of partnerships has an ownership right in the
profits. The member must agree to share the profit or losses of the business,
in fact, sharing of profits and losses is one of the poor or parameter of tile
existence of partnership.
Sometime, a manager is
allowed a certain percentage of the profit as a bonus or in lieu of a fixed
salary. It does not give the manager an ownership right in the profits and does
not make him/her a partner. To be a partner, one must have an ownership right
in the profit.
8. Co-ownership of
partnership assets: When individual invest assets of the partnership, they
retain no claim to those specific assets but acquire co-ownership right in the
profit.
9. Status: From
the accounting viewpoint, a partnership, like sole proprietorship, is not
separate from the owners.
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