A 'partnership' is an agreement between two or more individuals to collect their financial and administrative resources, share their profits or losses, and allow a business to continue. The individuals who form a partnership are called "partners" and collectively called "partnership companies". Partnership is a limited form of small and medium enterprises with limited capital and other resources, limited production and limited expertise in marketing and maintenance.
Definitions
Section 4 of the Partnership Act, 1932 defines partnership as "the relationship between individuals who agree to share the profits of a business working for all or for all".
L.H. Honey said, "The relationship between individuals who are eligible for the contract usually allows them to run a legitimate business for personal gain."
John Schubin said, “Two or more individuals can enter into a partnership, either in writing or orally.
Features of a partner company
The characteristics of a business organization partnership can be identified as follows:
1. Creation: The corporate form of the business organization is governed by the provisions of the Indian Partnership Act, 1932. It will come into force through a legal agreement. The way a business is run must be legal and work for profit. However, bringing two people together for charitable purposes is not a partnership.
2. Association of two or more persons: partnership, at least two persons. The maximum number of members in the banking business should not exceed 10 and for other businesses it should not exceed 20. Participants must be eligible to enter into the contract. A joint venture cannot be formed because the minor is not qualified to enter into a contract.
3. Unlimited Liability: The shareholders of a company have unlimited liability. Personal assets can be used to repay debts if business assets are insufficient. In addition, the partners are obligated to repay the loan jointly and individually. Overall, as long as all partners are responsible, they are responsible for the debts they contribute to the business. Even personally, each partner is obligated to repay the debts of the business.
4. Indirect power: An indirect power used by any partner on behalf of the company. The business is controlled by the activities of the shareholders.
5. Presence of a legitimate business: A business in which individuals agree to share profits must be legal. Any contract to engage in smuggling, black market, etc. cannot be called a partnership business in the eyes of the law.
6. Good faith: Good faith and mutual trust are the main foundation of a partnership business. Each participant must act honestly and give the other participants the correct figures. If there is doubt between the partners the partnership will not work. Distrust and suspicion among shareholders leads to the failure of the company.
7. Primary and Agent Relationship: There should be an agency relationship between the partners. Each partner is the primary and agent of the company. When a partner interacts with other parties, he / she acts as the other partner's agent and the other partner becomes the primary agent.
8. Restriction on transfer of shares: No partner may sell or transfer his shares to others without the consent of the other partners. If any partner does not wish to continue the partnership, he / she can give notice of termination of the partnership.
9. Voluntary registration: Partnership registration is not mandatory, but certain restrictions apply to an unregistered company that requires registration.
10. General Management: Every shareholder has the right to participate in the running of the business. Not all participants are required to participate in the day-to-day running of the business, but they have the right to participate. Although the partnership business is run by certain partners, the approval of all other partners is required to make important decisions.
Advantages and Disadvantages of Partnership Firm
Advantages of Partnership Firm
The participatory form of business is ideal for medium-sized businesses, where the personal efforts of entrepreneurs are essential to work effectively. Key Benefits of Partnership:
1. Easy to create: This section can be easily created without many legal procedures. Since the company does not need to be registered, a simple agreement, verbal, written or explicit, is sufficient to create a collective agreement.
2. Large resources: When two or more partners join hands to start a partnership, more resources can be mobilized compared to the sole proprietorship form of the business entity. Partnership concerns can also organize funding from external sources.
3. Best Outcomes: Each participant in a joint venture has the right to participate in business management. All major decisions are made with the consent of all stakeholders. Thus, there is collective wisdom, and irresponsible and hasty decisions are rare.
4. Benefits of Professionalism: All participants actively participate in the business according to their skills and knowledge. In a partnership that provides legal advice to the public, one partner can handle civil cases, one criminal case, and another employment case based on their personality. Similarly two or more doctors with different specialties can start a clinic.
5. Flexibility in activities: Partnership is a flexible organization. After obtaining the necessary approval from all partners, shareholders may decide to change the size or nature of the business or its area of operation.
6. Risk Sharing: The loss of the company is shared equally by all the partners or at an agreed rate. The weight of each partner is very low compared to the weight of the same partner. Moreover, fear of risk does not prevent business expansion.
7. Serious Interest: When shareholders share profits and make losses, they become more interested in business matters. Partners have direct access to employees and can motivate them to do more work.
8. Protecting the interests of minorities: In the form of participation in a business entity, the rights and interests of each partner are fully protected. If a partner is dissatisfied with any decision, he or she may terminate or terminate the partnership. All major decisions are made with the consent of all stakeholders.
9. Confidentiality: Only the shareholders know the trade secrets of the company. Outsiders are not required to disclose any information. It is not mandatory to publish the annual accounts of the partnership.
10. High Credit Qualification: Shareholders have adequate contacts in the market. They can provide more securities to financial institutions. The responsibility of the partners is unlimited and they can raise more funds. Corporate concerns deserve more credit compared to single ownership.
Disadvantages of a partnership
A partner company experiences the following shortcomings or limitations;
1. Unlimited Liability: The most important shortcoming of the partnership is the unlimited liability of the shareholders, i.e. the shareholders are personally liable for the debts and liabilities of the company. In other words, the company can pay off debts with their private property.
2. Uncertainty: Every partnership has a life of uncertainty. The death, bankruptcy or retirement of any partner will terminate the partnership. Not only that, any dissenting partner can file a termination at any time.
3. Limited Capital: As the total number of shareholders should not exceed 20, the fund raising capacity is less than the number of shareholders as compared to an unlimited joint stock company.
4. Indirect power load: A partner can connect the business through his activities. He can act as an agent of the business. An dishonest partner can lead the business into difficulties. Other partners must fulfill partner obligations. Providing indirect power will create problems for the business.
5. Permanent Allocation: The interest contribution of a shareholder cannot be transferred to other partners or outsiders. Therefore, it creates a bad situation for the partner who wants to change his role completely or partially to others. The only solution is to dissolve the company.
6. Conflict potential: Every shareholder in the company has an equal right to participate in management. Each participant can present his or her opinion or perspective to management at any time. For this reason, there are sometimes conflicts and quarrels between partners. Disagreements can lead to quarrels and the collapse of the company.
7. Public Distrust: Accounts of participatory concerns have not been published. Therefore, the public is not aware of the exact state of the business. There is a perception in the minds of the people that these concerns are making huge profits at the expense of the consumers. There are no legal restrictions on the release of accounts. Therefore, participation is about public distrust.
8. Delay in decision making: All important decisions are made with the consent of the participants, so the decision making process will take time. Slow decision making can lead to loss of business opportunities. In general, decisions are made by consensus, and it is difficult to persuade all participants to accept a particular decision.
Despite all of the above limitations and limitations, the form of partnership is appropriate when a business needs more management and capital; Ideal for small and medium concerns and when direct contact with customers is required.
