99registrations - Partnership Firm

1. WHAT IS A PARTNERSHIP FIRM? Partnership is a common form of business. Two or more people come together to carry on a business and share the profits and losses. Liability of the partners in a partnership firm is joint and several. A partnership firm is not a separate legal entity distinct from its members. It is merely a collective name given to the individuals composing it.

2. WHAT ARE THE CHARACTERSTICS OF PARTNERSHIP FIRM ? • Existence of an agreement • Existence of business • Sharing of profits • Contractual Relation • Nature of liability • Registration of firm • Non-transferability of interest • Existence of Business • Unlimited Liability • Restriction and Transfer of Share

3. Existence of an agreement • Partnership is the outcome of an agreement between two or more persons to carry on business. This agreement may be oral or in writing. The Partnership Act, 1932 (Section 5) clearly states that “the relation of partnership arises from contract and not from status.”

4. Existence of business • Partnership is formed to carry on a business. As stated earlier, the Partnership Act, 1932 [Section 2 (6)] states that a “Business” includes every trade, occupation, and profession. Business, of course, must be lawful.

5. Sharing of profits • The purpose of partnership should be to earn profits and to share it. In the absence of any agreement, the partner should share profits (and losses as well) in equal proportions.

6. Contractual Relation • The person joining the partnership enters into a contract for running the business. According to Partnership Act, the relation of partnership arises from contract and not from status. The contract may be oral or written but in practice written agreement is made because it helps to settle the disputes if they arise later on.

7. Nature of liability • The nature of liability of partners is the same as in case of sole proprietorship. The liability of partners is both individual and collective. The creditors have a right to recover the firm’s debts from the private property of one or all partners, where firm’s assets are insufficient.

8. Registration of firm • Registration of a partnership firm is not compulsory under the Act. The only document or even an oral agreement among partners required is the ‘partnership deed’ to bring the partnership into existence.

9. Non-transferability of interest • No partner can assign or transfer his partnership share to any other person so as to make him a partner in the business without the consent of all other partners.

10. Existence of Business • Partnership can only be for some kind of business. The term ‘Business’ includes any trade, profession or occupation. By business we mean all activities concerning production, distribution and rendering of services for the purpose of earning profits. If the work is related to social service, we do not call it a business and hence no partnership.

11. Unlimited Liability • As in the case of a sole-trade business liability of the partners of a firm is unlimited. In case some obligation arises then not only the partnership assets but also the private property of the partners can be taken for the payment of liabilities of the firm to the third parties. The creditors can claim their dues from anyone of the partner or from all the partners. The partners are liable individually and collectively.

12. Restriction and Transfer of Share • No partner can sell or transfer his share to anybody else without the consent of the other partners. In case any partner does not want to continue in the partnership, he can give a notice for dissolution of the firm.

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