A partnership is a relationship of mutual trust and faith. In order to maintain this trust, it is necessary that the partnership accounts must be maintained in honest, accurate and equitable manner. Partnership accounts should present a true and fair picture of the partnership business. For this purpose, it is necessary to study the definition of partnership as given in the Partnership Act and the relevant provisions of the Partnership Act which affect the partnership accounts. When we talk about the forms a business organisation can take, one of the most prominent ones is a partnership. In India particularly it is a very popular entity to carry out business. Let’s take a look at some of the important features of a partnership firm registration.
Features of Partnership Firm
A partnership firm is not a separate legal entity. But according to the act, a firm must be formed via a legal agreement between all the partners. So a contract must be entered into to form a partnership firm.
Its business activity must be lawful, and the motive should be one of profit. So two people forming an alliance to carry out charity and/or social work will not constitute a partnership. Similarly, a partnership contract to carry out illegal work, such as smuggling, is void as well.
- Unlimited Liability
In a unique feature, all partners have unlimited liability in the business. The partners are all individually and jointly liable for the firm and the payment of all debts. This means that even personal assets of a partner can be liquidated to meet the debts of the firm.
If the money is recovered from a single partner, he can, in turn, sue the other partners for their share of the debt as per the contract of the partnership.
A partnership cannot carry out in perpetuity. The death or retirement or bankruptcy or insolvency or insanity of a partner will dissolve the partnership. The remaining partners may continue the partnership if they so choose, but a new contract must be drawn up. Also, the partnership of a father cannot be inherited by his son. If all the other partners agree, he can be added on as a new partner.
- Number of Members
As we know that there should be a minimum of two members for a partnership. However, the maximum number will vary according to a few conditions. The Partnership Act itself is silent on this issue, but the Companies Act, 2013 provides clarity.
For a banking business, the number of partners must not exceed ten. For a business of any other nature, the maximum number is twenty. If the number of partners increases it will become an illegal entity or association.
- Mutual Agency
In a partnership, the business must be carried out by all the partners together. Or alternatively, it can be carried out by any of the partners (one or several) acting for all of them or on behalf of all of them. So this means every partner is an agent as well as the principal of the partnership.
He represents the other partners in some cases so he is their agent. But in other circumstances, he is bound by the actions of any of the other partners asking him the principal as well.
Here in this article, we have understood the features of Partnership firm, it will surely be useful for you to grow your business.
The next step once your business is registered is to open a current account online and here you are all set to successfully manage and grow your business