Partnership firm is an agreement made between two or more parties for forming an entity, where they agree to follow all rules and objectives set by the parties in the partnership deed. The firm is managed, operated & controlled by the parties for profit. Partnership is the relation which subsists between two or more persons who agrees to contribute or combine their property, labour, skill in some businesses, and to share the profits there-of between them. According to section 4 of the Partnership Act of 1932,"Partnership is defined as the relation between two or more persons who have agreed to share the profits of a business carried on by all or any one of them acting for all".
Benefits of partnership fund:
• Flexible in nature – It is easy to form a partnership firms as it does not involves much formality during incorporation, where new partners can be introduced in mid of business at any time. The roles and responsibility can be shifted or interchange to one partner to another as per the situation occurs. Even the capital funded, profit sharing, and other policies can be changed.
• Allocating Burden – The partners can assign the task and responsibility in between them self’s for making the work go in a managed and easy. Where each partners know there part of roles in the business, which helps in speedy work and growth.
• Multiple brains - As we know starting a business is not a game it requires new ideas, creative thought process & brain stomping where in partnership firm there are more than one person having their own speciality which can help in growth of business.
• Pocket friendly / Economical - Documents required:
Q1. DEFINITION OF "PARTNERSHIP", "PARTNER", "FIRM" AND "FIRM-NAME".
Ans. "Partnership" is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. Persons who have entered into partnership with one another are called individually, "partners" and collectively "a firm", and the name under which their business is carried on is called the "firm-name".
Q2. MUTUAL RIGHT AND LIABILITIES of partners.
Subject to contract between the partners –
(a) A partner is not entitled to receive remuneration for taking part in the conduct of the business;
(b) The partners are entitled to share equally in the profits earned, and shall contribute equally to the losses sustained by the firm;
(c) Where a partner is entitled to interest on the capital subscribed by him, such interest shall be payable only out of profits;
(d) A partner making, for the purposes of the business, any payment or advance beyond the amount of capital he has agreed to subscribe, is entitled to interest thereon at the rate of six per cent. per annum;
(e) The firm shall indemnify a partner in respect of payments made and liabilities incurred by him (i) in the ordinary and proper conduct of the business; and (ii) in doing such act, in an emergency, for the purpose of protecting the firm from loss, as would be done by a person of ordinary prudence, in his own case, under similar circumstances; and
(f) A partner shall indemnify the firm for any loss caused to it by his wilful neglect in the conduct of the business of the firm.
Q3. Does a Minor be a partner?
A person who is a minor according to law can’t be a partner in a firm until he becomes major but with consent of all the partner he may be entitled to the benefits of partnership firm and is entitled of certain rights. Following are the rights and duties which he is entitled to:-
1. The major has right on the property and profits that the firm has agreed upon and by admitting partners. He may have access to and can inspect and get a copy any of the firm’s accounts.
2. The minor shareholder would be liable for the acts of the firm but his personal liability can’t be used for any such act.
3. The minor may not sue the partners for his share of property and profit of the firm until he severing his connection with the firm.
4. Within the time of six month of minor attaining majority, or of his obtaining knowledge that he had been admitted to the benefits of partnership, he has to give public notice that he has elected to become or elected not to become a full partner with the firm.
5. When a person is elected to be a partner - he can continue his same right and liabilities in the firm as that when he was a minor, where as he become personally liable to the third party for all acts of the firm done since he was admitted to the benefits of partnership.
Q4. THE CONDUCT OF THE BUSINESS. Subject to contract between the partners –
(a) Every partner has a right to take part in the conduct of the business;
(b) Every partner is bound to attend diligently to his duties in the conduct of the business;
(c) Any differences arising as to ordinary matters connected with the business may be decided by a majority of the partners, and every partner shall have the right to express his opinion before the matter is decided, but no change may be made in the nature of the business without the consent of all the partners;
(d) Every partner has a right to have access, inspect and get a copy of any of the books of the firm;
(e) In the event of the death of a partner, his heirs or legal representatives or their duly authorised agents shall have a right of access to and to inspect and copy any of the books of the firm.
Q5. What are the different types of partnerships?
There are two major types of partnerships according to the Indian Partnership Act, 1932 which are as follows:
1. Partnership-at-will: In this form, people enter into a partnership based only on their will or choice. This means that the partnership between people can end at any point by any partner through the means of notice.
2. Particular partnership: In this form, people enter into a partnership for the fulfillment of a particular task or undertaking and the partnership ends automatically through fulfillment of the undertaking. It can also be converted into a partnership at will at the wish and consent of the partners.
Q6. What are the harmful effects of not registering a partnership business?
The following are the effects of non-registration of a firm:
1. A partner cannot institute a suit against the firm or any partner of the firm to enforce a right arising from a contract or conferred under the Act.
2. The firm cannot sue a third party to enforce a right arising from a contract.
3. The firm or partner cannot plead a set-off if legal proceedings are initiated against them to enforce a right arising from a contract. All these actions are made unavailable to the firm and its partners due to its non-registration.
Q7. How many partners can there be?
A partnership must have at least two partners. A partnership firm in the banking business can have up to 10 partners, while those engaged in any other business can have 20 partners.