There are some specific features/characteristics of partnership business; some of them are given below:
Characteristics of partnership business
1. Existence of contract: There must exist an agreement among the persons carrying on a business. This is the first criterion of the partnership business since the partnership is a contractual relationship.
It is the essence of partnership, which distinguishes it from other types of business organizations. Any person willing to carry on a partnership business must enter into a contract, which may be oral or written.
2. A number of members: There must be at least more than one member. At the same time number of persons entering into a partnership agreement must not exceed twenty except for banging business, where the number of members must not exceed ten.
According to the partnership act, the minimum number of members of the partnership business is 2 and the maximum is 20.
3. Distribution of profit & loss: The distribution of profit and loss is the prima facie evidence of a partnership. The amount each partner is to contribute is decided by the agreement. The profits and losses of the business are distributed equally among the partners.
4. Existence of trust and confidence: Mutual trust and confidence are required throughout the continuance of the partnership. From its inception to its termination, each partner must have trust and confidence in his fellow partners.
5. Association of individuals: The association of individuals in a partnership may be based on as simple an act as a handshake; however, it is preferable to state the agreement in writing since:
- A partnership is a legal entity for certain purposes.
- A partnership is an accounting entity for financial reporting purposes.
- The net income of a partnership is not taxed as a separate entity.
6. Mutual agency: Mutual agency means that each partner acts on behalf of the partnership when engaging in partnership business and the act of any partner is binding on all the partners.
7. Liability of partners: Like sole proprietorship, the liability of ordinary partners is unlimited. For example, if the assets of the business are not sufficient to meet the liability of creditors, his private poverty will be subject to the obligation.
But the liability of the limited partner is limited to ht amount he has invested and he cannot take an active part in the management and administration of the business.
8. Capital: All the partners usually supply the capital of the business, however, there is no hard and fast rule of how much capital a partner has to contribute.
9. Taking decision: There can be some difficulties in taking any decision in partnership business because there is always a danger of disagreement among partners. Delay in decision-making is also a disadvantage of this business.
In an emergency, one partner can’t make any decision alone. He has to consult with other partners of the business. So, in order to make any decision, they have to consult first.
10. Lawful business: The term “business” includes all trades, professions, or occupations. The purpose of a partnership agreement is to carry on a lawful business and nothing else.
11. Registration: Registration of the partnership business is not compulsory in our country. It depends absolutely upon the sweet will of the partners. Registration is not very hard. Any time a partner may get their business registered by a fling with the Registrar and statement in the prescribed form.
12. Restrictions on transfer of shares: No partner can transfer his share in the partnership without the prior consent of all the other partners. Thus, a partner cannot transfer the interest of his own will.
Other Content of Partnership Business:
- What is a Partnership Business?
- Elements of Partnership Business
- Different Types of Partnership Business
- Importance of Partnership Agreement
- Contents of Partnership Agreement
- Advantages and Disadvantages of Partnership Business
- Different Kinds of Partners
- Registration of Partnership Business
- Consequences / Effects of Partnership Registration
- Dissolution of Partnership Business