Meaning and Definition of Partnership
Partnership form of organisation is an extension of the sole proprietorship. It has already been explained that a sole proprietary form of organisation suffers from several drawbacks such as limited capital, limited managerial ability, concentrated risk and less chances for expansion and growth etc. With the result, the sole trader is compelled to seek the co-operation of others so that he can meet the changing situations effectively. Generally when a sole trader finds it difficult to handle the problems of growth and expansion, he takes a partner. Thus it represents the next stage in the evolution of business organisation.
The persons who enter into partnership are individually called ‘Partners’ and collectively known as ‘Firm’. According to Section 4 of the partnership Act, 1932. “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”.
According to Prof.Haney, “The relations which exist between persons, competent to make contracts, who agree to carry on a lawful business in common with a view to private gain”.
According to Spriegal, “Partnership has two or more members each of whom is responsible for the obligatory requirements of the partnership. Each of the partners may bind the others and the assets of the partners may be taken for debts of partnership”.
The main characteristics of partnership are given below:
Partnership is the result of an agreement, which may be oral or written. Consequently persons not competent to contract (for example, minors) cannot form it.
Since partnership is the outcome of an agreement, the minimum number of persons required to form a partnership is two. Maximum is restricted to 10 in the case of banking business and to 20 in all other cases.
The partnership agreement must be to carry on lawful business or a profession. If there is no business there can be no partnership. In other words, partnership is not a club or a charitable association.
The business must be carried on with a view to earn profit and share it among all the partners. An agreement to undertake philanthropic activities does not constitute partnership because profit motive is completely absent.
In fact, mutual agency is the essence of partnership. Since the business is to be carried on by all or any of them acting for all, each partner acts simultaneously as a principal and an agent. To the outsiders, he is a principal while to the other partners he is an agent.