Question

Attempt the following:

Explain the features of a partnership firm.

Answer 1

The features of the partnership firm are as follows:

1. Lawful Business: Business undertaken by partnership should be lawful. It cannot undertake business forbidden by the state. The definition of partnership also does not permit any association like a club or charitable institution. Illegal business like smuggling or gambling is not allowed.
2. Agreement: Partnership is a result of an agreement between partners. There could be a written or oral agreement between partners. A written agreement is preferred so that it can be used as proof in the court of law if needed.
3. Number of Partners: Minimum two members are needed to start a partnership firm. The maximum number of members is 50.
4. Dissolution: A Partnership Firm can be dissolved through an agreement between partners. If a partner wants, he can dissolve the firm by giving 14 days' notice to the firm. The firm can be dissolved if a partner dies, becomes insolvent or insane.
5. Sharing of Profits and Losses: The purpose of the partnership is to earn a profit. Its object cannot be a charitable one. Partners have to share profits and losses according to the ratio given in the agreement. If the agreement is silent about the proportion then profit and loss sharing will be equal.
6. Termination of Partner: A partner may resign by giving proper notice in writing to the other partners. A partner can also be removed if he has been found doing any fraudulent activities
7. Joint Ownership: Each partner is the joint owner of the property of the firm. All partners are equal owners of business property. No partner can use the property for personal use.
8. Registration: It is not compulsory as per the Indian Partnership Act, 1932. However, in the State of Maharashtra, it has been made compulsory to get register with the ‘Registrar of Firms’ of the state.
9. Joint Management: All partners have equal rights in managing the firm. Some partners take an interest in the management of the firm and others voluntarily surrender their management rights. However, all partners are jointly responsible for the management of the firm.
10. Unlimited Liability: The liability of partners is unlimited joint and several. If assets of the business are not sufficient to pay liabilities, the personal property of partners can be used. If anyone of the partners is declared insolvent, his liability will be borne by the solvent partners.
11. Principal and Agent: Each partner works in two capacities, Principal and Agent. A partner acts as principal when within the firm and acts as an agent while dealing with outsiders. The partners play a dual role.
12. Restriction on Transfer of Interest: A partner cannot transfer or sell his interests in the firm to outsiders without the prior consent of all other partners in the firm.