Top 10 Features that Partners of Partnership Firm should know
This article will talk about the Top 10 Features that Partners of Partnership Firm should know:
- Two or more Members – At least two members are required to start a partnership business. But the number of members should not exceed 10 in case of banking business and 20 in case of other business. If the number of members exceeds this maximum limit then that business cannot be termed as partnership business.
- Agreement: Partnership Agreement is what that will constitute each partner’s role towards running the partnership firm. This agreement contains:
- the amount of capital contributed by each partner;
- profit or loss sharing ratio; o salary or commission payable to the partner, if any; o duration of business, if any ; o name and address of the partners and the firm; o duties and powers of each partner; o nature and place of business; and o any other terms and conditions to run the business.
- Competence of Partners – Since individuals join hands to become the partners, it is necessary that they must be competent to enter into a partnership contract. Thus, minors, lunatics, and insolvent persons are not eligible to become the partners. However, a minor can be admitted to the benefits of partnership i.e., he can have a share in the profits only.
- Sharing of Profit – The main objective of every partnership firm is sharing of profits of the business amongst the partners in the agreed proportion. In the absence of any agreement for the profit sharing, it should be shared equally among the partners. Suppose, there are two partners in the business and they earn a profit of Rs. 20,000. They may share the profits equally i.e., Rs. 10,000 each or in any other agreed proportion, say one forth and three fourth i.e. Rs 5,000/- and Rs. 15000/-.
- Unlimited Liability – Just like the sole proprietor the liability of partners is also unlimited. That means if the assets of the firm are insufficient to meet the liabilities, the personal properties of the partners, if any, can also be utilized to meet the business liabilities. Suppose, the firm has to make payment of Rs. 25,000/- to the suppliers of goods. The partners are able to arrange only Rs. 19,000/- from the business. The balance amount of Rs. 6,000/- will have to be arranged from the personal properties of the partners.
- Voluntary Registration – It is not compulsory that you register your partnership firm. However, if you don’t get your firm registered, you will be deprived of certain benefits, therefore it is desirable. The effects of non-registration are:
- Your firm cannot take any action in a court of law against any other parties for settlement of claims.
- In case there is any dispute among partners, it is not possible to settle the disputes through a court of law.
- Your firm cannot claim adjustments for the amount payable to or receivable from any other parties.
- No Separate Legal Existence – Just like a sole proprietorship, partnership firm also has no separate legal existence from that of it owners. Partnership firm is just a name for the business as a whole. The firm means the partners and the partners collectively mean the firm.
- Principal Agent Relationship – All the partners of the firm are the joint owners of the business. They all have an equal right to actively participate in its management. Every partner has a right to act on behalf of the firm. When a partner deals with other parties in business transactions, he/she acts as an agent of the others and at the same time the others become the principal. So there always exists a principal agent relationship in every partnership firm.
- Restriction on Transfer of Interest – No partner can sell or transfer his interest to anyone without the consent of other partners. For example – A, B, and C are three partners. A wants to sell his share to D as his health does not permit him to work any more. He can not do so until B and C both agree.
- Continuity of Business – A partnership firm comes to an end in the event of death, lunacy or bankruptcy of any partner. Even otherwise, it can discontinue its business at the will of the partners. At any time, they may take a decision to end their relationship.