Characteristics of Partnership Form of Business Organization
Characteristics of Partnership Form of Business Organization

Characteristics of Partnership Form of Business Organization

  1. Association of two or more persons: In partnership, there must be at least two persons. Partnership is the outcome of a contract, so there must be two or more persons. The persons becoming partners must be competent t enter into a contract.  

Minors cannot form a partnership firm as they are incompetent to enter into a contract. According to section 11 of Contract Act, there is no maximum limit on partners in Partnership Act, but according to Companies Act, the maximum number of partners engaged in a banking business cannot exceed ten and twenty in any other business.

2. Contractual Relation. The persons joining the partnership enter into a contract for zing the business. According to Partnership Act, the relation of partnership arises from contract and not from status. The contract may be oral or written but in practice written agreement is made because it helps to settle the disputes if they arise later on.

3. Earning of Profits. The purpose of the business should be to make profits and distribute them among partners. If a work is done for charity purposes or to serve the society it will not be called partnership. So, the motive of the business should be to earn profits. It does not mean that there will not be losses but the motive should be the earning of profits.

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4. Existence of Business. Partnership can only be for some kind of business. The term “Business” includes any trade, profession or occupation. By business we mean all activities concerning production, distribution and rendering of services for the purpose of earning profits the work is related to social service, we do not call it a business and, hence, no partnership.

Characteristics of Partnership Form of Business Organization
Characteristics of Partnership Form of Business Organization

firm. 5. Implied Authority. There is an implied authority that any partner can act on behalf of the The business will be bound by the acts of partners.

6. Unlimited Liability. As is the case of a sole-trade business liability of the partners of s firm is unlimited. In case some obligation arises then not only the partnership assets but also the private property of the partners can be taken for the payment of liabilities of the firm to the third parties. The creditors can claim their dues from anyone of the partners or from all the partners. The partners are liable individually and collectively.

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7. Principal and Agent Relationship. In partnership the relationship of Principal and About exists. It is not necessary that all partners should work in the business. Any one or more partners can act on behalf of other partners. Each partner is an agent of the firm and his activities bind the firm. He also acts as a principal because he is bound by the activities of other partners.

8. Utmost Good Faith. The very basis of the partnership business are good faith and mutual trust. Every partner should act honestly and give proper accounts to other partners. The Partnership

cannot run if there is suspicion among partners. It is very important that partners should act as trustees and for the good of all. Distrust and suspicion among partners lead to the failure of many firms.

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9. Restriction one Transfer of Shares. No partner can sell or transfer his share to anybody else without the consent of the other partners. In case any partner does not want to continue in the partnership, he can give a notice for dissolution of the firm.

10. Common Management. Every partner has a right to take part in the running of the business. It is not necessary for all part in the ping of the the day-to-day at vises the business but they are entitled to participate. Even if partnership business is run by some partners, the consent of all other partners is necessary for taking important decisions.

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11. Partners and Partnership are One. A partnership firm has no separate entity from the partners. A firm is only a name to the collective name of partners. No firm can exist without partners. The rights and liabilities of partners are the rights and Stabilities of the firm. Partners have implied authority to bind the firm for their acts.

12. Capital Contribution. The partners contribute to the capital of the firm. It is not necessary to have capital in profit sharing ratio. A partner can be admitted to the firm even without contributing to the capital. It is not essential that all partners must contribute to the firm’s capital.

13. Protection of Minority Interest. All important decisions are generally taken by consensus. It ensures protection of those who may not agree to the majority view point. A partner may even ask for the dissolution of partnership if he feels aggrieved.

characteristics of partnership form of business

14. Continuity. There is no true limit for the continuity of a partnership firm. It goes on only unto the time the partners want it to go. Any misunderstanding among partners, death or insolvency of a partner may dissolve the partnership. Dissolution of partnership does not necessarily mean dissolution of the firm. The remaining partners may continue the firm after meeting the claims of outgoing partners.


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