Characteristics Of Partnership Form Of Business Organisation
Based on the definition of partnership as given above, the various characteristics of partnership form of business organisation, can be summarised as follows
(a) Two or More Persons: To form a partnership firm atleast two persons are required.
The maximum limit on the number of persons is ten for banking business and 20 for other businesses. If the number exceeds the above limit, the partnership becomes illegal and the relationship among them cannot be called partnership
(b) Contractual Relationship: Partnership is created by an agreement among the persons who have agreed to join hands. Such persons must be competent to contract. Thus, minors, lunatics and insolvent persons are not eligible to become the partners. However, a minor can be admitted to the benefits of partnership firm i.e., he can have share in the profits without any obligation for losses.
(c) Sharing Profits and Business: There must be an agreement among the partners to share the profits and losses of the business of the partnership firm. If two or more persons share the income of jointly owned property, it is not regarded as partnership.
d) Existence of Lawful Business: The business of which the persons have agreed to share the profit must be lawful.Any agreement to indulge in smuggling, black marketing etc. cannot be called partnership business in the eyes of law.
(e) Principal Agent Relationship: There must be an agency relationship between the partners. Every partner is the principal as well as the agent of the firm. When a partner deals with other parties he/she acts as an agent of other partners, and at the same time the other partners become the principal.
(f) Unlimited Liability: The partners of the firm have unlimited liability. They are jointly as well as
individually liable for the debts and obligations of the firms. If the assets of the firm are insufficient to meet the firm's liabilities, the personal properties of the partners can also be utilised for this purpose. However, the liability of a minor partner is limited to the extent of his share in the profits.
(g)Voluntary Registration: The registration of partnership firm is not compulsory. But an unregistered firm suffers from some limitations which makes it virtually compulsory to be registered. Following are the limitations of an unregistered firm