Partnership firm:

• A business firm run by two or more persons together with the objective of sharing the profit or loss is called a partnership firm.
• According to partnership Act, 1932, “Partnership is a relation between two or more people who have agreed to share the profit and/or loss of the business which is run
  by all or one on behalf of all”.
• In a partnership firm the ownership remains in hands of more than one person or say in the hands of all the partners together. The business is managed by all partners or by one or more partners as per the partnership deed and mutual understanding. Similarly, the profit or loss is borne by all as per the ratio decided in the deed.

Characteristics of partnership firm:
1. Relation by agreement:

A partnership firm comes into existence by either verbal or written agreement called the partnership deed. It can also come into existence just by mutual agreement and understanding of people, however it is always advisable to have a written agreement.

2. Process of establishment:

The process of establishing is simple and one does not need to undergo a lengthy and complex legal procedure.

3. Registration:

As per the partnership Act it is not compulsory to register a partnership firm but it is advisable to do so. The partners need to submit the partnership deed to the Registrar of Firms who will then register the firm.

4. Number of partners:

A general partnership firm need to have minimum 2 partners and maximum 20. Whereas for a banking business there can be a maximum of 10 partners only.

5. Purpose of partnership firm:

• The main objective of a partnership firm is to earn profit by doing activities that are legally permitted.
• Activities such as social service managing religious programmes or tasks though done together cannot be called partnership because the objective of profit does not exist in such cases.

6. Capital:

Generally, all the partners invest the capital as mentioned in the partnership deed ‘ however, it is not necessary that every partner invests.

7. Management:

All the partners can jointly manage the partnership firm and all of them can participate in decision making. However, partners can mention and authorize names of one or more partners in the partnership deed who would manage the business.

8. Unlimited liability:

The liability of all the partners is unlimited. This means the partners will have to even sell their personal assets like properties, cars, etc. to pay the business debts. As per the Partnership Act the partners are individually and jointly responsible for paying off the firm’s debts. This also means that if one or more partner is unable to pay the business debts from his personal assets, the remaining partners, will have to pay the debt from their personal assets.

9. Transfer of ownership:

It is not easy to transfer the ownership of a partnership firm. Unless all the partners approve one cannot transfer his share in anyone’s favour. In case if a partner does so, any partner can dissolve the partnership firm.

10. Legal status:

The Partnership Act, 1932 contains all the details and procedures about registering the firm, rights and duties of partners, establishment, dissolution, etc.

11. Life span of the firm:

• A partnership has a limited life. Partnership and partnership firm exist separately.
• The partnership ends if a partner dies, becomes mentally unstable or insolvent. In such cases, the remaining partners can redistribute the share of that partner among themselves or even admit a new partner. In this way the existing partnership may end but the partnership firm can live, i.e. not get dissolved.