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Questions and Answers
What is the maximum number of partners allowed in a partnership according to the Companies Act, 2013?
What is the maximum number of partners allowed in a partnership according to the Companies Act, 2013?
What is the primary objective of a partnership?
What is the primary objective of a partnership?
What is the minimum number of partners required to form a partnership?
What is the minimum number of partners required to form a partnership?
What happens to a partnership when a partner dies or becomes insolvent?
What happens to a partnership when a partner dies or becomes insolvent?
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What is the main advantage of having a partnership deed?
What is the main advantage of having a partnership deed?
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What is the rate of interest allowed on loans given by partners to the firm in the absence of a partnership deed?
What is the rate of interest allowed on loans given by partners to the firm in the absence of a partnership deed?
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What is the profit-sharing ratio in the absence of a partnership deed?
What is the profit-sharing ratio in the absence of a partnership deed?
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What is the liability of partners in a partnership?
What is the liability of partners in a partnership?
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What happens to the liability of a retiring partner?
What happens to the liability of a retiring partner?
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What is the effect of registration of a partnership?
What is the effect of registration of a partnership?
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Study Notes
Meaning and Definition of Partnership
- Partnership is a business organization where two or more persons come together to earn profit.
- According to the Indian Partnership Act, 1932, partnership is the relation between persons who have agreed to share the profits of a business.
Nature of Partnership
- Partnership is formed by an agreement between two or more persons.
- The main objective is to share profits and losses among partners.
- The agreement must be to carry on some business.
- Each partner acts as an agent for the firm and other partners.
- Partners have unlimited liability.
- Partnership relies heavily on mutual trust and confidence.
Characteristics of Partnership
- Formed by an agreement, either oral or written.
- Minimum two partners; maximum 50 (as per the Companies Act, 2013).
- Partnership does not have a separate legal entity.
- Each partner acts as both principal and agent.
- Partners share the risks of the business.
- Partnership dissolves with the death or insolvency of a partner unless otherwise agreed.
Rights of Partners
- Every partner has the right to take part in the conduct of the business.
- Partners have the right to be consulted on matters affecting the business.
- Every partner has the right to inspect and copy the books of the firm.
- Partners have the right to share profits in the agreed ratio.
- Partners have the right to be indemnified for expenses incurred in the ordinary course of business.
Partnership Deed
- A partnership deed is a written agreement among partners specifying the terms and conditions of the partnership.
- Specifies the name of the firm, nature of business, capital contribution, profit-sharing ratio, duties and responsibilities of partners, etc.
- Clarifies terms and conditions clearly.
- Minimizes disputes among partners.
- Acts as a legal document in case of disagreements.
- Facilitates smooth functioning of the partnership.
Provisions Affecting Accounting Treatment in the Absence of Partnership Deed
- Profits and losses are shared equally.
- No interest is allowed on the capital.
- No interest is charged on drawings.
- Interest at 6% per annum is allowed on loans given by partners to the firm.
- No partner is entitled to salary or commission.
Liabilities of Partners
- All partners are jointly liable for the debts of the firm.
- Partners are also individually liable to the full extent of the firm's debts.
- A retiring partner remains liable for the debts incurred before retirement.
- A new partner is not liable for debts incurred before joining the firm.
Other Provisions of the Indian Partnership Act, 1932
- Registration of a partnership is not compulsory but beneficial.
- Specifies the rights and duties of partners.
- Provides rules for the dissolution of a partnership.
- A minor can be admitted to the benefits of the partnership with consent of all partners.
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Description
Learn about the meaning and definition of partnership, its nature, and the characteristics of a partnership agreement as per the Indian Partnership Act, 1932.
