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Features of Partnership form of business organisation
After having a brief idea about partnership, let us identify the various features of this form of
business organisation.
i. Two or more Members - You know that the members of the partnership firm are
called partners. But do you know how many persons are required to form a
partnership firm? At least two members are required to start a partnership business.
But the number of members should not exceed 10 in case of banking business and 20
in case of other business. If the number of members exceeds this maximum limit then
that business cannot be termed as partnership business. A new form of business will
be formed, the details of which you will learn in your next lesson.
ii. Agreement: Whenever you think of joining hands with others to start a partnership
business, first of all, there must be an agreement between all of you. This agreement
containso
the amount of capital contributed by each partner;
o profit or loss sharing ratio;
o salary or commission payable to the partner, if any;
o duration of business, if any ;
o name and address of the partners and the firm;
o duties and powers of each partner;
o nature and place of business; and
o any other terms and conditions to run the business.
iii. Lawful Business - The partners should always join hands to carry on any kind of
lawful business. To indulge in smuggling, black marketing, etc., cannot be called
partnership business in the eye of the law. Again, doing social or philanthropic work is
not termed as partnership business.
iv. Competence of Partners - Since individuals join hands to become the partners, it is
necessary that they must be competent to enter into a partnership contract. Thus,
minors, lunatics and insolvent persons are not eligible to become the partners.
However, a minor can be admitted to the benefits of partnership i.e., he can have a
share in the profits only.
Business Studies
74
v. Sharing of Profit - The main objective of every partnership firm is sharing of profits
of the business amongst the partners in the agreed proportion. In the absence of any
agreement for the profit sharing, it should be shared equally among the partners.
Suppose, there are two partners in the business and they earn a profit of Rs. 20,000.
They may share the profits equally i.e., Rs. 10,000 each or in any other agreed
proportion, say one forth and three fourth i.e. Rs 5,000/- and Rs. 15000/-.
vi. Unlimited Liability - Just like the sole proprietor the liability of partners is also
unlimited. That means, if the assets of the firm are insufficient to meet the liabilities, the
personal properties of the partners, if any, can also be utilised to meet the business
liabilities. Suppose, the firm has to make payment of Rs. 25,000/- to the suppliers of
goods. The partners are able to arrange only Rs. 19,000/- from the business. The
balance amount of Rs. 6,000/- will have to be arranged from the personal properties
of the partners.
vii. Voluntary Registration - It is not compulsory that you register your partnership
firm. However, if you don't get your firm registered, you will be deprived of certain
benefits, therefore it is desirable. The effects of non-registration are:
o Your firm cannot take any action in a court of law against any other parties for
settlement of claims.
o In case there is any dispute among partners, it is not possible to settle the
disputes through a court of law.
o Your firm cannot claim adjustments for amount payable to or receivable from any
other parties.
viii. No Separate Legal Existence - Just like sole proprietorship, partnership firm also
has no separate legal existence from that of it owners. Partnership firm is just a name
for the business as a whole. The firm means the partners and the partners collectively
mean the firm.
ix. Principal Agent Relationship - All the partners of the firm are the joint owners of
the business. They all have an equal right to actively participate in its management.
Every partner has a right to act on behalf of the firm. When a partner deals with other
parties in business transactions, he/she acts as an agent of the others and at the same
time the others become the principal. So there always exists a principal agent relationship
in every partnership firm.
x. Restriction on Transfer of Interest - No partner can sell or transfer his interest to
any one without the constent of other partners. For example - A, B, and C are three
partners. A wants to sell his share to D as his health does not permit him to work any
more. He can not do so until B and C both agree.
xi. Continuity of Business - A partnership firm comes to an end in the event of
death, lunacy or bankruptcy of any partner. Even otherwise, it can discontinue its
business at the will of the partners. At any time, they may take a decision to end their
relationship.

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