Introduction and Meaning
A partnership is a mutual relationship between two or more persons, who make a contract to share profits and losses among themselves from the exercises of a specific business. In other words, when two or more persons agree to carry on a business for mutual profits, it is said that they have formed a partnership.
The rights of a partner in a partnership firm are different from the counterpart of a sole proprietorship firm.
According to Prof. Marshall
Partnership is a voluntary organization of two or more persons who agree to earn profits from a lawful business and share it among themselves. The persons who participate in this business are individually called ‘Partners’ and cumulatively called a ‘Firm’. The name in which the business is carried on is called ‘the name of the firm’.
According to H.L. Hane
Partnership can be defined as a relationship among those persons who has made contract to run the business jointly with the aim of earning personal profits.
Number of Members
A minimum of 2 and a maximum of 20 members can form a partnership. But if it is a banking business, the maximum number can be 10.
Liability of Members
A partner has unlimited personal liability in a partnership firm i.e., all the debts of a firm can be recovered from any one of the members.
- Legislation Indian Partnership Act, 1932 is applicable in it.
It depends upon the partners of the firm, whether they want to register the firm or not, i.e., registration is not compulsory.
Participation in Management
Every partner has the full right to take part in the management of the firm.
Transfer of ownership
No partner can transfer the ownership without the consent of other partners.
Effect of Member’s Death
If there are two members then it comes to an end after the death of anyone’s partner. (If there are more than two partners then it depends on the partnership deed.
Sources of Capital
Partners bring their own capital from their private resources.
Auditing of Accounts
It depends upon the partners, whether they wish to audit their accounts or not, i.e., audit of accounts is not compulsory.
Secrecy is maintained only up to the partners of the firms but in a public company, there is no secrecy at all.
Preparation of Final Accounts
It is not necessary to maintain final accounts in partnership.
When some special incident takes place or on expiry of the predetermined time period of partnership or on self discretion, winding up can be done.