What Are The Characteristics Of Partnership?

The characteristics of partnership in business are as follows:

• Two or more people: Partnership requires a minimum of two people. There is no maximum limit in the partnership act. However, the Companies Act has the maximum limit of 10 people for banking business and 20 persons for other businesses.
• Contractual relation: A partnership comes into existence only after a contract or agreement between the partners. It might be an oral or a written contract. However, a written contract is always preferable as it helps in resolving disputes amongst partners, if any.
  
• Lawful: A contractual business has to be lawful. It must abide with all the rules and conditions as laid down by the Government and Companies Act.
  
• Unlimited liability: All the partners are liable for the obligations of partnership firm. If assets of the business are insufficient to meet the liability of creditors then personal property of the partners can be considered to meet such liabilities.
• No separate legal existence: In partnership the firm and partners are considered one. Hence, it does not have any separate existence.
  
• Sharing of profits and losses: Earning profit is the main goal of partnership firm. Hence, the contract must provide the sharing of profit and losses of all the partners. A charitable organization cannot be called a partnership as it does not operate for profits.
  
• Transfer of shares: There is restriction on transfer of shares to an outsider in a partnership firm. The partner can either transfer his shares to the existing partners or he needs consent from all the partners if he wants to transfer his shares to an outsider.
• Faith and Trust: There has to be utmost  faith and trust amongst partners. A business cannot run without these two things. All partners should be honest with each other and there must be mutual understanding and trust amongst them.

Definition of Partnership
Partnership or firm as it is often called is the 2nd stage in the evolution of forms of business organization. Partnership as a form of business organization grew out of the limitations of individual proprietorship. In sole proprietorship, the financial resources, managerial skill, risk bearing capacity were limited. When business activities started expanding, the arose a need for more capital, more persons to supervise the business affairs, The partnership form of organization was developed to overcome the draw backs of sole trading organization and to meet the expanding needs of a business requiting a moderate amount of capital. Here two or more persons (not exceeding 20) form partnership by making a written or oral agreement that they will jointly assume full responsibility for the conduct of business. L H. Haney defines partnership in the following words. Partnership is the relationship between persons who agree to carry on a business in common with a view to private gain.”

Elements of Partnership

The essential elements of partnership as a form of business organization are as follows:-

(I) Association of at least two persons
Atleast two persons must joint together to form a partnership.

(ii) Contractual relation
There must be an agreement between persons desirous of forming a partnership.

(iii) Earning of profit
The agreement must be to share profit/loss of a business.

(iv) Mutual agency
The business of partnership may be carried on by all the partners or by any of them acting for all. Thus every partner is an agent of other partners and at the same time of the firm.

Section of the Partnership Act of 1932 as adopted in Pakistan defines partnership in the following words “Partnership Is the relation between persons who have agreed to share the profits of a business carried on by all or any one of them acting for all. Persons forming partnership are individually known as partners and collectively ‘a firm’.

A partnership is formed and established according to the requirement of partnership act 1932. Partnership is the result of an agreement among the partners. This agreement may be in written or oral, but it must be in written form for successful operations. Registration of partnership business is not compulsory by law. It depends upon the mutual will of the partners. Owner of the partnership business are known as partners.

There are at least two partners in a partnership. If the business of ordinary nature than minimum partner is 2 and maximum are 20. While in case of banking business minimum partners are 2 and maximum number of partners is 10.

All the partners in a partnership business can take part in the management of the business. However they may elect any one of them as their representative. Profit and loss of the partnership business is distributed among the partners according to the agreement. There is more number of partners and more capital is available in the partnership business as compare to the sole proprietorship so this form of business organization is suitable for medium scale of business. This form of business organization is less flexible as compare to sole Trader ship due to more owners, more resources and difference of opinion among the partners.

A partnership is an organization which is an unincorporated association. It is owned by two or more individuals who equally share the profits or losses of the business. There are various small businesses which can be considered as example of partnership like retail, service, and professional practitioners. A partnership have limited number of years depending upon the agreement. Secondly, it is a mutual agency and the partners act as the agents of partnership and they are also responsible for running the operations of the business. In addition, partnerships can be easily formed and dissolved and there are no legal issues involved.

Advantages and disadvantages of a partnership

Money, trust, responsibility