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Chapter: 11th Commerce : Hindu Undivided Family and Partnership

Meaning, Definition and Characteristics of Partnership

Partnership form of organisation is an extension of the sole proprietorship.

Meaning and Definition of Partnership

Introduction

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”.

 

Definition of Partnership

 

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”.

 

Characteristics

 

The main characteristics of partnership are given below:

 

i. Contractual Relationship

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.

 

ii. Plurality of persons

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.


 

iii. Existence of business

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.

 

iv. Sharing Profits

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.

 

v. Mutual Agency

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.

 

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11th Commerce : Hindu Undivided Family and Partnership : Meaning, Definition and Characteristics of Partnership |


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