The above definitions point out the following vital characteristics of the partnership form of business organisation. Jointly, all the partners shoulder the responsibility of repaying the debts by contributing a proportion to their share in business and are liable to that extent. Individually too, each partner can be held responsible in repaying the debts incurred by the business. Nevertheless, such a partner can also recover from other partners an amount of money corresponding to the shares in liability defined as per the partnership agreement.
Partnership is the relationship between persons who are competent to make contracts and have agreed to carry on a lawful business in common with a view of individual gain.
Partnership is the relation which sustains between persons who have agreed upon to combine their property, labour or skill in some business and to share the profits there from between them.
- Formation: The partnership form of business organisation is governed by the Indian Partnership Act, 1932. It is accomplished through a legal agreement wherein the terms and conditions governing the relationship between the partners, sharing of profit and loss, the mode of conducting the business are precise. It is pointed out that the business must be legal and run with the objective of profit. Thus, two people coming jointly for charitable purposes will not comprise a partnership.
- Liability: The partners of an organization have unlimited liability. Personal property and belongings can be used for repaying debts in case the business assets are scarce. Further, the partners are jointly and individually liable for payment of debts.
- Risk Bearing: The risk in the business is borne by the partners. The profit and loss they earn for the risk taken is shared by the partners depending upon their contribution in capital.
- Decision Making and Control: The responsibility of decision making lies in the hands of the partners for all kinds of activities. The joint effort of the partners help them in running the business.
- Continuity: If any partner turns insolvent, insane or passes away, the partnership does not break. If the other partners wish to continue, they may do so but after preparing a new agreement between themselves.
- Membership: The minimum number of people required to open a partnership firm is two, for banks it is ten and for other businesses, it is twenty.
- Mutual Agency: In partnership each person is the principal and the agent. One partner is the agent when the others are principal an d vice versa.