BBA Notes Business Organisation Partnership Characteristics Features
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Partnership is an association of two or more persons as co-owners who have agreed to carry on a business and share profit and losses among themselves. The partnership may come into existence either as a result of the expansion of the sole concern of by means of an agreement between two or more persons desirous of forming a partnership.
It is the ideal form organization for the enterprise requiring moderate amount of capital and diversified managerial skills.
The formation and management of partnership business organization in india is governed by the ‘Indian’ Partnership Act 1932.
“Partnership may be defined as a relation between persons complement to make contract who agree to carry on a business in common with a view to private gain.”
“A partnership firm, as it is often called, is then a group of men who have joined capital or services fro the prosecution of some enterprise.”
“Partnership is the relation between persons who have agreed to share the profits of a business carried on by all or any of them accordingly.”
Characteristics/ Features of Partnership
- An association of two or more persons.
- Agreement among partner.
- Existence of business.
- Profit motive.
- Valid agreement.
- Character of membership.
- Unlimited liability.
- No legal position.
- Utmost good faith.
- Capital contribution.
- Dual role or Principal and agent.
Partnership deed forms the basis of partnership. It contains all important clauses like the name of the partnership firm contribution of capital sharing of profits, mode of management etc. Partnership is a written and stamped document duly signed by all partners containing all the matters according to which mutual rights, duties and liabilities of the partners in the conduct and management of the affairs of the partnership firm are determined.”
- Partnership deed is an agreement which may be in written or oral.
- It is made to have smooth running business and avoid any future disputes amongst partners.
- Document should be in written form and duly signed by all partners.
Contents (clauses) of Partnership Deed
- Name and full address of the partnership firm.
- Name of the partners and their full addresses.
- The nature of business of the partnership firm.
- Duration of the partnership firm.
- Total amount of capital along with contribution of each partner.
- The profit sharing ratio.
- The amount of salary and commission payable to any partner.
- Manner and extent of the withdrawals of the capital by partner.
Rights of a Partner (BBA Notes)
- Every partner has a right to take part in the conduct and management of the business.
- Every partner has a right to be consulted before taking important of the decisions.
- Right to inspection of book of account and to copy the accounts.
- No new partner admitted without the consent of all partners.
- Right to share profits equally unless otherwise mentioned in deed or mutually agreed.
- Entitled to receive interest at 6% per annum on loans given over and above the capital.
- Property of the firm can be used for the purposes of business.
- If partner incurred expenses for the protection of the firm from a loss in the normal conduct of business, he is entitled to be indemnified by the firm.
- Right to retire according to the terms or with the consent of remaining partners.
- Right to get partnership firm dissolved under appropriate circumstances.
Liability of a Partner
- Every Partner is liable jointly and separately for the acts of the partnership firm.
- Every Partner is liable for the wrongful act.
- Every Partner is liable for fraud negligence and misappropriation of partnership funds.
Registration of Partnership Firm (BBA Notes)
The registration of partnership firm is not compulsory under the Indian partnership Act 1932. It is on the partners of the firm to get it registered or not to get it registered. It is optional but mostly all prefer to get it registrar of firms of the state.
It provides a legal aid, a reliable proof and conclusive evidence of the existence of partnership firm. Thus, directly the registration is not compulsory but indirectly it is so. It is due to the numerous advantages of registration of a partnership firm.
Advantages of Registration
- Advantage to the firm.
- Advantage to the partners.
- Advantage to creditors.
- Advantage to incoming partners.
- Advantage to outgoing partners.
Right Uneffected by Non-registration (BBA Notes)
- Each partner has a right to dissolve the firm.
- Each partner has right to realise the property of a dissolved firm.
- The right of third party to file a suit against the unregistered is not affected.
- The power of an official assignee or receive realise the property of an insolvent partner is not affected.
- Any suit set off in which the claim does not exceed rupees one hundred only.
- It does not affect the right of a firm or its partners if the place of the business of the firm is outside india.
- The right to due for accounts of a dissolved firm.
Dissolution of a Firm
It means closure of the firm or termination of partnership business. When all the members of the firm commonly called as partners, Cease to be the partners of the firm and the firm is closed, it is called dissolution of the firm. It may be voluntary or under compulsion.
According to Section 39 of the Indian Panrtnership Act 1932
“The dissolution of partnership between all the partners of the firm is called the dissolution of the firm.”
Difference Between Dissolution of The Partnership and Dissolution of The Firm
Dissolution of partnership means the termination of the exiting contract amongst the partners due to one or more of the following reasons:
- Retirement of a partner.
- Admission of a new partner.
- Expulsion of a partner.
- Death of a partner.
- Insolvency of a partner.
- Lunacy of a partner.
- Transfer of shares by a partner with the consent of all the partners.
So the dissolution of partnership devotes the replacement of old arrangement in some form without affecting the partnership business.
When all the members of the firm, commonly called as partners ceases to the partners of the firm and the firm is closed it is called dissolution of the firm.
Dissolution of Firm (BBA Notes)
A distinction should be made between the ‘dissolution of partnership’ and ‘dissolution of form’. Dissolution of partnership implies the termination of the original partnership agreement or change in contractual relationship among partners. A partnership is dissclved by the insolvency, retirement, incapacity, death, expulsion etc., of a partner or on the expiry/completion of the term/venture of partnership. A partnership can be dissolved without dissolving the firm. In dissolution of partnership, the business of the firm does not come to an end. The remaining partners continue the business by entering into a new agreement. On the other hand, dissolution of firm implies dissolution between all the partners. The business of the partnership firm always involves dissolution of partnership but the dissolution of partnership does not necessarly mean dissolution of the firm.
What are the merits of Partnership?
- Easy formation : Like sole proprietorship form of business organization, partnership can be formed and dissolved very easily. All that is required is an agreement among the partners. There are not many legal formalities and too little legal expenses.
- Pooling of financial resources : A partnership enjoys more financial resources compared to sole proprietorship. If more funds are required, more partners can the admitted.
Formation of firms on partnership basis facilitates the tapping of the savings of different persons. The helps in expanding business and earning more profits, further, new partners can also be admitted to secure more capital needed for the expansion of business.
- Benefit of specialisation : Different partners have different qualities. In other words, they are expertise in their own fields. Therefore, the benefit of the skills, ability and capacity can be attained.
- Good decision making : In a partnership the business decision are taken unanimously after a thorough debate. Thus, there are little or no chances of any business decision going wrong.
- Risk sharing : Any losses sustained by the firm are shared by all the partners on a predetermined basis resulting in much lesser burden falling on the partners than as compared so sole proprietorship.
- More flexibility : If in future the partners feel that the business has not turned out to be profitable, they can with the approval of all the partners, shirt to some other business without any legal problem.
- Self motivation : The partner know that all the profits belonging to them. Hence, this thing continuous motivating and all partners work with perfect interest.
- Personal supervision : it increase the profitability of the business. As a matter of fact the management of joint stock companies.
Registration of Firms (BBA Notes)
The Partnership Act 1932 Provides for the registration of firm with the Registrar of firms appointed by the Government. The registration of a partnership firm is not compulsory. But an unregistered firm certain disabilities. Therefore, registration of a partnership is desirable.
Procedure for Registration
A partnership firm can be registered at any time by filing a statement in the prescribed form. The form should be duly signed by all the partners. It should be sent to the registrar of firms along with the prescribed fee. The statement should contain the following particulars :
- Name of the firm.
- Principal place of its business.
- Name of other places where the firm is carrying on business.
- Name in full and permanent address of all the partners.
- Duration of the firm (if any).
- Nature of the firm’s business.
On receipt of the statement and the fees, the registrar makes an entry in the register of firms. The firm so considered to be registered when the entry is made. The registrar issues a certificate of registration. Any change in the above particulars must be communicated to the registers of firms within a reasonable period of time so that so that necessary alteration may be made in the registers of firms. The register is open for inspection of payment of a nominal fee.