A partnership is a business structure where two or more individuals agree to share profits and losses. Section 4 of the Indian Partnership Act, 1932 defines a partnership as an association between persons who have agreed to share the profits of a business conducted by all or any one of them acting on behalf of all.
Key Features of Partnership
1. Two or More Persons Required
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A minimum of two partners is mandatory for forming a partnership.
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As per Section 464 of the Companies Act, 2013, the maximum number of partners cannot exceed 100.
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However, Rule 10 of the Companies (Miscellaneous) Rules, 2014 limits the maximum number of partners to 50.
2. Agreement Between Partners
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A partnership must be based on an agreement between partners.
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This agreement can be oral or written, but a written agreement (Partnership Deed) is preferred to avoid disputes.
3. Profit and Loss Sharing
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The primary objective of a partnership is to conduct business and share its profits.
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The Partnership Act mentions profit sharing, but loss-sharing is implied unless specifically agreed otherwise.
4. Mutual Agency
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Each partner is both a principal and an agent of the firm.
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One partner’s actions bind all the other partners unless restricted by an agreement.
5. No Separate Legal Entity
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A partnership firm does not have a separate legal identity like a company.
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The firm’s existence depends on its partners, and it dissolves if all partners leave or the firm is closed.
6. Unlimited Liability
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Partners have unlimited liability, meaning personal assets can be used to settle business debts.
7. Flexibility and Less Compliance
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Compared to companies, partnerships have fewer legal formalities.
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They offer flexibility in management and decision-making.
Conclusion
A partnership is a simple and cost-effective business structure suited for small businesses. However, unlimited liability and lack of a separate legal entity pose risks. Having a written partnership agreement ensures clarity and smooth operations.
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