A partnership firm is an organization which is formed with two or more persons to run a business with a view to earn profit. Each member of such a group is known as partner and collectively known as partnership firm. These firms are governed by the Indian Partnership Act, 1932. Following are the characteristics of Partnership Firm:
1. Number of Partners
Minimum number of person required to start a partnership firm is two and maximum limit is 10 in case of banking business and 20 in case of all other types of business.
2. Contractual relationship
A written agreement known as partnership deed which is signed by all the partners, binds them in a contractual relationship.
3. Voluntary Registration
Registration of partnership firm is not compulsory. Since the registration provides various benefits to the firm thus it is desirable.
4. Competence of Partners
Every partner must be competent enough to enter into the partnership agreement. He should not be minor (in some cases minor can be admitted only to the benefits of the partnership), lunatic or insolvent.
5. Sharing of Profit and Loss
In partnership firm all the profits and losses are shared by the partners in any ratio as agreed. If it is not given then they share it equally.
6. Unlimited Liability
Liability of partners of a partnership firm is unlimited. They are jointly held liable for the debts and losses of the firm.
7. Legal Status
Partnership firm has no distinct legal status separate from its partners.
8. Transfer of Interest
No partner can transfer its interest in the firm to anybody without the consent of other partners.
9. Principal - Agent Relationship
This relationship is based on mutual trust and faith among the partners in the interest of the firm. Business of the firm may be carried on by all the partners or any one of them acting for all. According to this, every partner is an agent when he is working on behalf of other partners and he is the principal when other partners act on his behalf.
Advantages of Partnership Firm:
1. Easy Formation
Registration is not compulsory in the case of Partnership firm. It can be formed without any legal formality and expenses. Thus they are simple and economical to form and operate.
2. Larger Resources
Due the more number of members the partnership firm has larger resources for the business operations as compared to sole proprietorship.
3. Flexibility in operation
Due to the limited number of partners there is flexibility in the operations of business as the partners can amend any objectives or change any operations any time by mutual consent.
4. Better Management
Business of a partnership firm is very well managed by all the partners as they take interest in the daily affairs of business because of the ownership, profit and control.
5. Sharing of Risk
In partnership every partner bears the risks individually as it is easier compared to sole proprietorship.
6. Partnership Firm
In a partnership firm interest of every partner is protected against any fraud.
Disadvantages of partnership Firm:
A partnership firm does not exist for an indefinite period of time. The death, insolvency or lunacy of a partner may lead to dissolution of the partnership firm.
2. Unlimited Liability
Liability of every partner in a partnership firm is unlimited as any of the partners may be called upon to pay all the debts even from its personal properties. A single wrong decision by one partner can lead other partners in heavy losses and liabilities.
3. Lack of Harmony
According partnership agreement every partner has equal rights. Some situations might occur in which one or the other partner will not agree on the same thing which will cause difference of opinion resulting mistrust and disharmony among the partners.
4. Limited Capital
Due to the restriction on the maximum number of members, a limited amount of capital can be raised.
5. No legal status
A partnership firm does not have a legal status like a Joint Stock Company.
6. Partnership Firm
In a partnership firm it is not easy to transfer ownership. Consent of every partner is required in order to transfer ownership.
What is the minimum capital requirement to start a Partnership Firm?
Formation of Partnership Firm does not require any minimum amount. It can be started with any amount of capital contribution by the partners. The Partners can contribute in any amount agreed and in any form being tangible (cash, premise) or intangible (goodwill, intellectual property). The Partners can introduce capital in any ratio, equal or uneven.
Firm Name and Address
Remuneration of Partners
Pan Card and Aadhar Card of All Partners
Profit Sharing Ratio
Nature of Business
All partners are actively engaged in the business of Firm
Info of whether bank A/c be operated by all partners jointly or severally
Date of Starting Business
Identity proof of all partners (Passport/Voter Id/Aadhar/Pan)
Address proof of all partners
Two Colour Photograph of all partners
Ownership Proof (Electricity bill/Water bill/Property Receipt) Power of attorney