The agreement is an essential part of the partnership business. It secures the right of both parties. The essential elements of a partnership business agreement are enumerated as follows:
Elements of partnership business agreement
1. Lawful business: The term “business” includes all trades, professions, or occupations. The purpose of the partnership agreement is to carry on a lawful business and nothing else.
2. Name of the business: The partnership firm must have its own name. The name in which the business is carried on is called the “firm name”.
3. Association of persons: At least two persons are needed to make a partnership. The Indian Partnership Act is silent about the maximum number of members. The Indian Companies Act provides the maximum number of members as en in case of banking business and as twenty in other cases.
4. Profit motive and sharing of profits: Partnership business is formed with the object of earning profit. The earned profit is to be distributed among the partners as per an agreed ratio.
5. Contractual relationship: A partnership is a contractual relationship between the persons who are competent to enter into a contract. The relationship between partners arises from the contract and not from status.
6. Mutual trust and confidence: The successful working of a partnership depends on the mutual trust and confidence of its partners. Partners have the duty to observe the utmost good faith in business dealings.
7. Principal-agent relationship: It’s not necessary that all the partners should manage the easiness. Anyone or more partners can run the business on behalf of all the partners. Each partner is an agent of the firm and his activities bind the firm.
8. Restrictions on transfer of share: No partner can transfer his share in the partnership without the prior consent of all the other partners. Thus, a partner cannot transfer his interest at his own will.
9. Unlimited liability: Partnership is based on the principle of unlimited liability. The personal property of the partners can be attached to satisfy the claims of creditors of the firm if the assets of the firm are insufficient to meet the claims of the creditors.
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