Partnership Firm: Definition and Characteristics

Study Notes

A partnership firm is a type of business organization where two or more persons come together to carry on a business with a view to earn profit.
It is a form of unincorporated business organization.

Voluntary association: Partners come together voluntarily to start a business.
Two or more persons: Minimum two persons are required to form a partnership firm.
Unlimited liability: Partners have unlimited liability, meaning their personal assets are at risk in case of business losses.
Sharing of profits: Partners share profits and losses in a predetermined ratio.
Mutual agency: Partners are agents of each other and can bind the firm by their actions.

Active partner: Takes an active role in the management of the business.
Sleeping partner: Provides capital but does not participate in the management of the business.
Nominal partner: Allows the use of their name in the business, but does not provide capital or participate in management.
Partner by estoppel: A person who represents themselves as a partner and is held liable as a partner.

A written agreement between partners that outlines the terms and conditions of the partnership.
Essential clauses: Names of partners, capital contribution, profit-sharing ratio, duration of partnership, and dissolution procedure.
Optional clauses: Interest on capital, drawings, salaries and commissions, and management responsibilities.

Easy to form: Partnership firm is easy to form and does not require many legal formalities.
Flexibility: Partners can adjust the partnership deed as per their needs.
Sharing of risks: Partners share risks and losses, reducing the burden on individual partners.
Combined skills: Partners can bring their unique skills and expertise to the business.

Unlimited liability: Partners have unlimited liability, which can be a risk.
Limited scalability: Partnership firms may find it difficult to raise large amounts of capital.
Conflicts between partners: Partners may have different opinions and interests, leading to conflicts.

A partnership firm is a type of business organization where two or more persons come together to carry on a business with a view to earn profit.
It is a form of unincorporated business organization.

Partners come together voluntarily to start a business.
A minimum of two persons are required to form a partnership firm.
Partners have unlimited liability, meaning their personal assets are at risk in case of business losses.
Partners share profits and losses in a predetermined ratio.
Partners are agents of each other and can bind the firm by their actions.

An active partner takes an active role in the management of the business.
A sleeping partner provides capital but does not participate in the management of the business.
A nominal partner allows the use of their name in the business, but does not provide capital or participate in management.
A partner by estoppel is a person who represents themselves as a partner and is held liable as a partner.

A partnership deed is a written agreement between partners that outlines the terms and conditions of the partnership.
Essential clauses include names of partners, capital contribution, profit-sharing ratio, duration of partnership, and dissolution procedure.
Optional clauses include interest on capital, drawings, salaries and commissions, and management responsibilities.