Lecture 15

Chapter: 03
Law of Partnership


A partnership is a form of business where two or more people share ownership, as well as the responsibility for managing the company and the income or losses the business generates.

The Partnership is the relation which subsists between individuals, who have decided to pool their money, skill and resources in business, to share profits and losses, in an agreed ratio. The members of a partnership are jointly known as the partnership firm and severally known as partners.

Characteristics of Partnership

Membership: At least two persons are required to begin a partnership while the maximum number of members is limited to 20 & in banking business; maximum number of members is 10. Further, all the individuals entering into partnership must be legally competent to do so, as they have to enter into a contract to become partners. Thus, minors, insolvent and lunatic persons cannot become members, but a minor can be admitted to partnership, to share profits.
Unlimited liability: The members of a partnership have unlimited liability, i.e. they are collectively and individually liable for the firm’s debts and obligations. So, if in case business assets are not adequate to repay liabilities, personal assets of all or any partner can be claimed by the creditors to realise the outstanding amount.
Sharing of profit and loss: The main purpose of the partnership is to share profit in the agreed ratio. However, in the absence of any agreement between partners, the business profits or losses are divided equally among all the partners.
Mutual Agency: The partnership business is undertaken by all the partners or any of the partners, who acts on behalf of all the partners. So, every partner is a principal as well as an agent. Further, the acts of partners bind each other as well as the firm.
Voluntary Registration: The registration of partnership is not mandatory, but it is recommended, as it offers certain benefits, e.g. in case of any conflict among partners, any partner can file suit against other partner or if there is any dispute between firm and outside party, then also the firm can file a case against that party.
Continuity: There is a lack of continuity in partnership, like death, bankruptcy, retirement or insanity of any partner can lead the partnership to end. Although, if the remaining partners want to continue operations, they can do so by a fresh agreement.
Contractual Relationship: The relation subsisting between partners is due to the contract, which may be oral, written or implied.
Transfer of interest: Mutual consent of all the partners is a must for transferring the interest in the firm to any external party.