Partnership

PARTNERSHIP

According to Section 4 of the Indian 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 of all.”

Main Features:

·        According to Indian Companies Act, 1956 in partnership, there should be

Minimum Numbers = 2 and

Maximum Numbers= 10 (in banking business)

Maximum Numbers= 20 (in ordinary business)

·        There must be an agreement between the partners. Such agreement can be either oral or in writing.

·        The main motive to form a partnership should be to carry some business (must be legal) with the intention of earning Profits.

·        The partners should share their profits according to their agreement.

·        Each partner is an agent as well as a partner of the firm. He can bind the other partners by his acts as an Agent. Moreover, he himself can be bound by the acts of the other partners as a Principal.

·        Each partner can participate in the business and is bound by the acts of the other partners in respect of the business of the firm.

 

PARTNERSHIP DEED

 

A written document which contains the term of agreement between partners is called Partnership Deed. It is essential that there must be some terms & conditions agreed upon by all the partners of the firm. According to law, it is not compulsory to have a written agreement. But to avoid all misunderstandings and disputes, it is the best course to have a written document duly signed and registered under the Act. It is also called ‘Articles of Partnership’.

Why it is necessary to have a Partnership deed for every firm?

Though according to law it is not mandatory for every firm but due to some reasons it is desirable to have it. The reasons are:-

·        It regulates the rights, duties and liabilities of each partner.

·        Any dispute between the partners can be settled easily with the reference of the partnership deed.

·        It helps to avoid the misunderstanding amongst the partners because all the partners know the terms and conditions of the Partnership Deed.

When there is no any partnership Deed between the partners, then the following rules will be applicable according to the Indian Partnership Act, 1932;

·        Profits and Losses are to be shared equally by all the Partners of the Firm (irrespective of their Capital contribution).

·        No interest on Capitals shall be allowed to the partners.

·        No interest is to be charged on Drawings (money withdrawn).

·        No partner is entitled to any salary or commission.

·        Interest @ 6% p.a. is to be allowed on a loan given by partner to the firm. Even in losses also, this interest will be paid.

·        Each partner can participate in the business of the firm.

·        No new partner can be admitted to the firm without the consent of all existing partners.

·        Each partner can inspect the books of the firm.