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Questions
State the features of a partnership firm.
State three features of partnership.
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Solution
A partnership firm is an organization with two or more persons to run a business to earn a profit. Each member of such a group is known as a partner and collectively known as a partnership firm. The Indian Partnership Act, 1932, governs these firms.
The features of a partnership firm are explained as follows:
- Agreement: A partnership is an agreement between two or more persons to do some lawful business. The agreement may be written or oral.
- Sharing of profits: The agreement must refer to sharing the profits among the partners in some agreed proportion. If the agreement is silent on this point, the profits are to be shared equally.
- The number of partners: According to Section 11 of the Companies Act, 1956, a partnership firm must have a minimum of 2 persons as partners, a maximum of 10 persons as partners for banking business, and 50 persons in the case of any other company.
- Joint ownership: The partnership firm is jointly owned by the partners. Therefore, the assets and the property must be used or utilized to conduct the partnership's business. Any single partner cannot use such property for their personal gain.
- Unlimited liability: The liability of all the partners except minor partners is unlimited, joint and several. If business property is insufficient, then the creditors can claim and recover their dues from the partners' private property. They can recover all dues from one partner, in proportion to all the partners, or from some partners.
- Dissolution: Events such as the death, insolvency, or insanity of any partner affect the continuity and stability of the partnership firm unless specified otherwise. In the case of a partnership at will, the partnership gets dissolved when any partner gives the other partners a 14-day notice to that effect. A partnership or joint venture disbands upon completion of the specified period or objectives.
- Joint management: The management of a partnership is collective. The business of a partnership may be managed by all of them, some of them, or any one on behalf of others. All the partners have equal rights to manage the business. However, for convenience, some partners may voluntarily surrender their managerial rights in favour of managing partners.
- Principal-agent relationship: Every partner acts as the principal and agent of the firm in matters relating to its business. Every partner is the principal to the outsiders, and to the other partners, he is an agent. As an agent, he can bind the firm and all other partners individually through his acts.
Notes
Students should refer to the Answer as per their Questions.
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