Partnership

Partnership is a form of business in whichPartnership is a form of business in which two two or more but not more than twenty peopleor more but not more than twenty people owns a owns a business. It is based on written contract or on an oral business. It is based on written contract or on an oral agreement.agreement.

Partnership is the relation between persons who have agreed to share the profit of a business carried on by all or any of them acting for all, persons who have entered into partnership with one another are called individually ‘Partner’ and collectively a ‘firm’. – Partnership Act-1932.

Partnership

S. E. Thomas : “A partnership is an association of people who carry on business together for the purpose of making profit”.

Professor Kant : “Partnership is a contract of two or more competent persons to place their money, efforts, labor and skill, or some or all of them in lawful commerce or business and to divide the profit and bear the loss in certain proportions”.

Plurality of members: More than one person involve with the formation of partnership business.

Contractual relation : The relationship of partners depends on contract among them.

Legal business :The business must be legal in the eye of law. Two or more than two persons involve with the illegal business is not a partnership.

Lawful business : The partnership business which must be legal in the eye of law.

Earning and sharing profit: The profit which is earned from the partnership business must be shared among the partners according to the predetermine ratio.

Mutual organization: This is the mutual organization where each and every member freely involves with the business.

Mutual confidence and trust: Partnership business formed depends on mutual trust and confidence.

Easy formation Plurality of members Contractual relation Supply of capital Administration Unlimited liabilities Limitation of size Sharing of profit & loss Mutual trust and

confidence

Mutual agency Taking decision Recognition and control

of law Registration Absence of legal entity Non-transferability of

ownership Uncertainty of stability

Easy formationMore capitalJoint effortsCollective decisionEfficient administrationSharing of riskFree from legal formalitiesFacility of loan allocation FlexibilityReduce autocracy

Unlimited liabilityDelay in decision makingAdministrative complexityInefficient managementLimitation of CapitalRisk of joint responsibilitiesLack of mutual trustLack of team spiritGood efficient of mutual agencyFacility of social connection

Types of partnerships: General partnership, Limited partnership.

General Partnership: A general partner has the authority to act and making decision for all partners. Partners generally share profits or losses as per the agreement made between them.

There are two types of general partner :There are two types of general partner :

Partnership at will & Particular partnership

# Partnership at will : According to the Partnership Act-1932, Section-7, there is no specific (fixed)

time for winding up the partnership business is called partnership at will. This type of partnership business will be form by the

following ways:a) Partnership business for the unlimited time.b) Partnership will be continued for achieving

objectives.

# Particular partnership: According to the Partnership Act-1932, Section-8, there must have a fixed time and particular objectives for conducting the partnership business is called particular partnership. a) Partnership business for a limited time. b) Partnership for achieving specific objective.

Limited Partnership: A limited partnership includes more general partners and one or more limited partners. The general partners arrange and run the business while the limited partners are the investors only. Limited partners receive special tax advantages. A limited partner has limited liability for loss of business and liable only up to the amount of capital invested.

By viewing of nature, work, right, duties and responsibilities, the partners may classify into the following ways:

Active partner: The active partner those partners who actively take part in the management and administrative activities of the business.

Dormant or sleeping partner : The sleeping partners who are not actively take part in the management and administrative activities of the business.

Nominal partner: A nominal partner is a person who has permitted others to believe that he is a partner. He does not invest capital but he gives a chance of using “Goodwill” of him.

Limited partner: A limited partner is a partner whose liability is limited to the amount that he paid to the business.

Quasi partner: A quasi partner is a partner who has withdrawal his capital but keep it as a loan to the business. He will get interest on his loan.

Who can be?Any person who is qualified to make a contract can be a partner of a partnership business.

Who can not be a partner?A minor A man of unsound mind Mentally sick personInsolvent person

Generally, minor can not be a partner. But it a partner is dead, his/her sons or daughters can be partners of the business.

They can enjoy the facilities and profits. But as they are minors they do not need to bear the responsibilities of the business.

g)Participation in the conducting of business .

h)Right of expressing opinion

i)Right to observe, inspect and taking copy of the documents

j)Claiming remuneration

k)Right of obtaining profit

l)Profit on capital

a)Interest on loan

b)Right to work as an agent

c)Right to introduce

d)Right to retirement

e)Right of not being expelled

f)Right in respect of winding up of a firm

Fulfillment of duties with diligence No claim of remuneration Proportionate bearing of loss Compensation of loss occurred by willful

neglect Surrender of profit earned from the

competitive business Performing the functions within the authority Bearing unlimited liability

The partnership deed or agreement refers to a document where all necessary terms and conditions are written. It is a written declaration of agreement among the partners.

Oxford dictionary of business, “Deed of

partnership is a partnership agreement drawn up in the form of a deed”

Professor J.L. Hanson, “Deed of partnership is a document drawn up to clarify the respective positions of the partners in a business”.

Deed/agreement is the guideline for conducting partnership business. All types of terms and conditions must be included in the partnership deed. Sound and smooth business operations demand that partnership agreement should be written and signed. This is not a legal binding but a moral requirement. Such a contractual written agreement is termed as ‘Articles of partnership’. Written agreement reduces the misunderstanding.

Written articles of agreement include the followings: Name of the partnership business. Types of business to be done. Location of the business. Expected life of the partnership. Names of the partners Amount of investment by each partner. Provision for taking loan for the different sources. Rate interest on debt and loan. Amount of salary to be provided to the active

partner. The address of the bank, where the bank account

will be open. Procedures of distributing profits and covering the

losses .

Amounts those partners will withdraw for services. Procedures for withdrawal of funds. Provision for evaluating goodwill of the business. Duties of each partner. Procedures to hire in case of death or absent. Procedures of running the business. Provision for changing the partnership deed. Procedures for dissolving the partnerships. Provision for evaluating asset and liabilities through

dissolution of partnership business.

Deed is the fundament condition of a partnership business. The pattern of partnership must be included in the partnership deed. The rights and duties of a partner must be included here. All the term and conditions must also be included in the partnership deed.

Inherent right Joint family business Inheritors of dead partners Retired partner Profit receiving creditor Relation of status Social relation

Registration is a task of listing name of the business in the registration office.

Actually registration of partnership means the registration of partnership deed . According to the Partnership Act , Section-58 (1) , registration is not compulsory but encourages doing it.

The contents of a application form for registration are as follows:

Name of the partnership business Location of the business. Objectives of the business. Name, address and profession of the partners Amount of investment by each partner. Date of joining the partners. Starting date of partnership business.

Case to the other partners Case to the third party Recovery of credit salesArbitration is not possibleChance of quickly dissolution Cheating with other partners

Dissolution of partnership may occur when one of the partners want to cancel the contract or according to the deed.

Dissolution is distinct from the termination of partnership and the ‘Winding up’ of partnership business.

There are various methods of dissolution: Dissolution by agreement: According to the Partnership

Act, section-41, by consent of all the partners of business, it will be resolve any time which was written in the partnership deed.

Compulsory dissolution: According to the Partnership Act, section-41, the compulsory dissolution take place under the following circumstances: By the happening of an event which makes it unlawful for the business. By the adjudication of all the partners or of all the partners but one as insolvent.

Dissolution due to the happening of certain contingencies : According to the Partnership Act, section-42, dissolution under the following circumstances: When the partnership for a certain period of time, the partnership business will dissolution after end of the period. By the retirement of a partner to business will be dissolved if there is no agreement to the contrary. By the death of one or more of the partners, unless there is a contract to the contrary. The completion of a particular adventure.

Dissolution by notice: According to the Partnership Act, section-42, the partnership business be resolve by giving notice to other partner.

Dissolution by the court: In case, any partner give complain against one or more of his co-partner, the

court may dissolve the partnership on any of the following grounds:

If a partner becomes imbalance. If a partner becomes permanently incapable of

doing work. If a partner frequently break of the partnership

agreement. If a partner has transferred the whole or part of his

interest to a third party, which is not lawful .

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