Partnership(Chapter 4)

8/3/2019 Partnership(Chapter 4)

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Partnership


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Definitions Two or more individuals may form a

partnership by making a written or oral

agreement that they will jointly assume full

responsibility for the conduct of business.

-Dr. J.A Shubin

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 for all.

-Indian Partnership Act,1932


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Characteristics of partnership

Statutory Characteristics

More than one person

Existence of businessContractual relationship

Profit motive and sharing of profits

Principal-agent relationship


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General characteristics

Unlimited liability

No separate individuality

Utmost good faith

Restriction on transfer of funds


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Types of

partnership

General &Limited

Partnershipat will &Particular

Legal &Illegal


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Merits of partnershipEasy formulation

More financial resources

Balanced decision

Benefit of specialization in

management


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Continued .More flexibility

More credit facility

Secrecy

Personal control

Self motivation


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Continued.Coordination in different activities

Benefits of unlimited liability

Division of work


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Demerits of partnershipLack of prompt decision

Lack of harmonony

Lack of continuity

Limited resources

Risk of implied authority

Lack of public faith

More wastage


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Distinguish between

Partnership & SoleProprietorship/Trade


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BASIS OF

DIFFERENCE

PARTNERSHIP SOLE TRADE

Number of members General business:Minimum-2 maximum-20

Banking Business:

Minimum-2 maximum-10

Owner is individual

Agreement Clear or implied agreement

is essential, in the form ofpartnership deed.

No need or question of

agreement

Act Indian Partnership Act,

1932 applies to business.

No Act applies to this

business.

Registration Not necessary in

Partnership

No question of registration

in sole trade.

Profit-Loss sharing Profit & loss is divided

among all the partners

according to the agreement.

Sole trade himself is

recipient of all profit-loss.

Management All or one on behalf of

others manages the firm.

The entire burden is on the

shoulders oof sole trader.


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Basis of Difference Partnership Sole Trade

Capital All Partners invest in the

firm which leads to

increase in the financialresources.

Amount of capital is

limited because of single

owner.

Succession Successor of dead partner

join partnership is not

necessary. He can be

partner only on approval of

other partners.

On death of sole trader his

legal successor

automatically becomes the

owner of the business.

Secrecy Little Secrecy Absolute secrecy

Scope of business wide Limited

Difficulty in formation Simple formalities are there No formalities

Quickness in decisions Decisions can be delayed Decisions can be takenquickly


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Documents

Partnership(Chapter 4)