Features of a Partnership Firm
"A voluntary association of two or more persons who contribute their capital and services, and share the profits and losses in an agreed proportion."
"Partnership is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all." — Section 4 of the Indian Partnership Act, 1932
Key Features Explained
1. Joint Ownership
The partnership firm is jointly owned by all partners. The property of the firm should be used exclusively for business purposes, not personal use.
2. Agreement
A partnership is formed through an agreement between partners. While it can be oral, a written agreement (Partnership Deed) is highly advisable to prevent future disputes.
3. Lawful Business
The business undertaken by the firm must be legal and permitted by the law of the country. Any illegal activity cannot form a valid partnership.
4. Unlimited Liability
Each partner has unlimited liability, meaning their personal assets can be used to pay off the firm's debts if business assets are insufficient.
5. Sharing of Profits & Losses
The primary motive is to earn and share profits. The ratio for sharing profits and losses is specified in the agreement, often based on capital contributed.
6. Number of Partners
A partnership requires a minimum of two people. The maximum is 10 for banking businesses and 20 for other types of businesses, as per the Indian Partnership Act, 1932.
7. Business Secrecy
While more confidential than a public company, a partnership lacks the complete secrecy of a sole proprietorship, as information is shared among all partners.