Sunday, March 28, 2010
The discussion of various definitions of partnership leads to the following characteristics :
(1) Association of Two or More Persons : Partnership is the outcome of a contract, so there must be two or more persons to enter into a contract. An association of two or more persons to enter into a contract. An association of two of more persons will become a partnership only when it is meant to do some business. If the purpose is social service it will not be a partnership. In partnership act, the maximum number of partners is not mentioned.
(2) Agreement : The partnership is set up by an agreement between partners. In the absence of agreement partnership cannot be established. There must be a written agreement which helps to settle the disputes if they occur later.
(3) Principal-Agent Relationship : The business must be carried on by all or one or more acting on behalf of all partners. So every partner is an agent of the firm as well as of the other members. Whether participating in management or not, every partners will be liable for action of each of the other partners in the ordinary course of business. Thus, every partner has a double role—as and agent and principal, at the same time.
(4) Sharing Profit and Loss : The purpose of partnership should be to earn profits and there must be an agreement to share profit and loss. Profit and loss sharing ratio depends on the mutual contract among partners. But if a work is done for charity purposes, it cannot be called partnership.
(5) Unlimited Liability : In partnership, partners have joint and several unlimited liability. So in the first instance, they have to share the loss jointly in profit sharing ratio. But if any or more partners are unable to contribute to their shares of deficiency, the remaining partners have to pay for their shares also.
(6) No Free Transfer of Share : A partner is not permitted to sell or transfer his share to an outsider without the consent of all partners. Partnership share is not a freely transferable asset.
(7) No Legal Status : The partners and the firm are not legally separate. Partnership is purely personal organization it has no separate legal personality.
(8) Registration : The registration of partnership is compulsory unless the firm is registered, it cannot be partnership.
(9) Stability : A partnership is established on the basis of the mutual contract among partners. So, the stability of a partnership is dependent on its contract. If a partner retires or dies, the contract is terminated.
Posted by Swagan Thapa at 8:06 PM