What is Partnership? Partnership is one of the major forms of business organizations and it has been defined under section 4 of partnership Act 1932 as follows;
“Partnership is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all”.
When we make an analysis of this definition we find that an organization is said to be a partnership when it has the following elements.
(a) There must be an agreement between two or more persons.
(b) The agreement must be to carry on business to earn a profit,
(c) The business must be carried on by all the partners or any of them who act for all.
DEFINITION OF PARTNERSHIP
Some authors define the partnership in the following manner.
A partnership is a voluntary association of two or more persons who contribute money, property, time, care and skill to carry on as co-owners a lawful business for profit and share the profit and loss of this business.
A partnership firm is a voluntary association of two or more individuals for the operation of an industrial, commercial or other business undertakings.
Partnership is a relation which subsists between persons carrying on business in common with a view of profit. So from the above definitions we conclude that partnership is a relationship between two or more persons who have agreed to contribute their capitals, combine their labor or skill to carry on some business carried on by all the partners or any of them and who share the profit and loss of such business according to an agreed ratio.
FEATURES OF PARTNERSHIP
The important features partnership are as follows:
1. PARTNERSHIP AGREEMENT
Partnership is formed with an agreement between the partners to carry on business. This agreement may be written or oral but a written agreement is better than oral.
2. NUMBER OF PARTNERS
According to Partnership Act, the minimum limit of the partners is two but there is no maximum limit mentioned. But according to the Companies Ordinance, when in cases of banking business partners exceed than 10 (ten) and in any other business faced than 20 (twenty), the partnership must be registered as a company. So the maximum limit of partners is 20 and in case of the banking business, it cannot exceed than 10.
3. MANAGEMENT OF BUSINESS
The business of the partnership may be managed by all the partners or any one of them or by those who are experts in organizing the business. It is not an obligation for all the partners to take an active part in the business activities.
4. SHARING PROFIT AND LOSS
The profit or loss of the partnership business is distributed among the partners to their agreed ratio. If the ratio is not mentioned, the profit or loss is divided equally among the partners.
5. LIABILITY OF PARTNERS
The liability of each partner is unlimited. If the firm suffers losses and the assets of the firm are not sufficient to meet the claims against the business, the personal property of each partner can be sold under court’s order to meet the claims.
6. ENTRY OF NEW PARTNERS
With the mutual consent of all the partners, a new partner can be admitted to the firm at any time.
7. WITHDRAWAL OF PARTNERS
Any partner can also be retired from the firm with the mutual Consent of all the other partners. The remaining partners can run the business in partnership.
The capital of the partnership form of business organization is contributed by the partners according to their agreed ratio.
9. TRANSFER OF SHARE
A partner can transfer his share in the business to another person only With the consent of all the other partners. If all the other partners do not allow, no one partner can transfer his share to another person.
10. CHECKING OF BOOKS
In this form of business organization, books of accounts are maintained and they are kept at a place where every partner can check them easily.
11. MINOR AS A PARTNER
According to The Partnership Act, a minor cannot become a partner in the firm. But if all the partners agree he can be admitted only to the benefits but he is not personally liable for the acts of the firm.
12. DISSOLUTION OF THE PARTNERSHIP
The business of the firm can be dissolved if the partners concerned violate the articles of agreement or of any partner dies, becomes disable or insolvent, the partnership is dissolved.
According to partnership Act, the registration of the firm is not compulsory. But if the partners like they can get it registered and can have the benefits of the registration.