A partnership is an upgraded form of a proprietorship as it provides various other benefits which a proprietorship fails to provide. In a partnership, one or more persons can join hands to form a business organization unlike sole proprietors. Sole proprietors suffer from various limitations such as limited resources, limited skills and unlimited liability. The risk involved in partnership is more than in a proprietorship.
Expansion of business in a partnership is much easier as there is more capital investment, better managerial skills and quick decision making. In case any one partner lacks managerial skills or has less capital, he or she can get help from the other partners regarding the same.
Definition of a Partnership:
The definition of partnership under Partnership Act, 1932 states that “Partnership is the relation between persons who have agreed to share the profit of business carried on by all or any one of them acting for all.”
In simple words, the term is defined as a contract made voluntarily between two or more persons to locate their capital, skills, labour or some or all of them in a lawful manner with the understanding that there shall be sharing of profit between them.
Characteristics of a Partnership:
The partnership has the following characteristics:
- Agreement: The partnership can start with an agreement with 2 or more people acting as partners.
- Sharing of Profit: The most important feature of the partnership is the division of profit and losses,the profits and losses are shared according to the agreement of the partners while registering the partnership deed. In the absence of any such clause in the partnership deed, the profit and losses will be distributed equally.
- Lawful business: The business carried by the partners should be lawful and the object of the business shall not contravene the provisions of the Partnership Act,1932.
- Members: The minimum members under partnership can be two and maximum partners can be 20 to run a business.
- Unlimited Liability: The liabilities of the partners are unlimited, joint and several.
- Mutual Agency: As per the definition of the partnership the business must be carried on by all the partners or any one of them acting for all.
- Non-transferability of shares: The share of interest cannot be transferred by a partner to others without the consent of all the other partners.
Examples of partnership:
Few famous brands in India that qualify as a Partnership are:
-Spotify and Uber
-Levi’s and Pinterest
Advantages of a Partnership:
The partnership has its own advantages as it is an upgraded and better version of sole proprietorship. The following are the benefits of partnership
- A partnership firm can be formed easily by joining the hands with one or more partners and no legal formalities and expenses are required to start a partnership firm.
- Partners can contribute capital and resources in bulk as compared to a sole proprietor.
- It is much more flexible as it is easy to initiate changes in terms of meeting the desired result of the future .
- All losses in partnership firms are shared equally among the partners. Therefore, it is easy for them to meet the future losses if any.
- Partnership has an advantage as each partner contributes with a different set of skills and knowledge.
Partnerships are mostly preferred by entrepreneurs with startups. It provides better control over the business due to which it helps in seeking higher levels of profit. It is important for the partners to go together and make a deed with the consent of all the partners so that it includes all the essential elements of the business to avoid conflicts in future. Team Delfyle wishes you the very best of luck for your amazing journey ahead. In case of any further queries, feel free to get in touch with us at email@example.com for a chat, absolutely free of cost!