Partnership

Definitions
Two or more individuals may form a partnership by making a written or oral agreement that they will jointly assume full responsibility for the conduct of business. -Dr. J.A Shubin 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. -Indian Partnership Act,1932

Characteristics of partnership
Statutory Characteristics More than one person Existence of business Contractual relationship Profit motive and sharing of profits Principal-agent relationship

 General characteristics Unlimited liability

No separate individuality
Utmost good faith Restriction on transfer of funds

Types of partnership
General & Limited

Partnership at will & Particular

Legal & Illegal

Merits of partnership
Easy formulation More financial resources Balanced decision Benefit of specialization in management

Continued .
More flexibility More credit facility Secrecy Personal control Self motivation

Continued.
Coordination in different activities Benefits of unlimited liability
Division of work

Demerits of partnership
Lack of prompt decision Lack of harmonony Lack of continuity Limited resources Risk of implied authority Lack of public faith More wastage

Distinguish between Partnership & Sole Proprietorship/Trade

BASIS OF DIFFERENCE
Number of members

PARTNERSHIP
General business: Minimum-2 maximum-20 Banking Business: Minimum-2 maximum-10 Clear or implied agreement is essential, in the form of partnership deed. Indian Partnership Act, 1932 applies to business. Not necessary in Partnership

SOLE TRADE
Owner is individual

Agreement

No need or question of agreement No Act applies to this business. No question of registration in sole trade.

Act Registration Profit-Loss sharing

Profit & loss is divided Sole trade himself is among all the partners recipient of all profit-loss. according to the agreement. All or one on behalf of others manages the firm. The entire burden is on the shoulders oof sole trader.

Management

Basis of Difference
Capital

Partnership
All Partners invest in the firm which leads to increase in the financial resources. Successor of dead partner join partnership is not necessary. He can be partner only on approval of other partners. Little Secrecy wide Decisions can be delayed

Sole Trade
Amount of capital is limited because of single owner. On death of sole trader his legal successor automatically becomes the owner of the business. Absolute secrecy Limited Decisions can be taken quickly

Succession

Secrecy Scope of business Difficulty in formation Quickness in decisions

Simple formalities are there No formalities