Nature of Partnership

What is Nature of Partnership?

When two or more people join hands to set up an enterprise and share its gains and losses, they are said to be in partnership. Section 4 of the Indian Partnership Act 1932 states partnership as the ‘association between people who have consented to share the profits of an enterprise carried on by all or any of them acting for all’.

People who have entered into a partnership with one another are independently termed as ‘partners’ and comprehensively termed as ‘firm’. The name under which the trade is carried is called the ‘name of the firm’. A partnership enterprise has no distinct legal entity, apart from the partners comprising it. Hence, the vital features of the partnership are:

  • Two or More Persons: In order to manifest a partnership, there should be at least two persons possessing a common goal. To put it in other words, the minimal number of partners in an enterprise can be 2. However, there is a constraint on their maximum number of people. By the uprightness of Section 464 of the Companies Act 2013, the Central Government is authorised to stipulate a maximum number of partners in an enterprise; however, the number of partners cannot exceed 100. The Central government has stipulated the maximum number of partners in an enterprise to be 50, under Rule 10 of the Companies (Miscellaneous) Rules, 2014. Hence, a partnership enterprise cannot have more than 50 people (partners)
  • Agreement: It is the outcome of an accord between 2 or more people to regulate business and share its gains and losses. The agreement (accord) becomes the basis of the association between the partners. Such an agreement is in the written form. An oral agreement is evenhandedly legitimate. In order to avoid controversies, it is always good if  the partners have a copy of the written agreement.
  • Sharing of Profit: Another significant component of the partnership is, the accord between partners has to share gains and losses of a trading concern. However, the definition held in the Partnership Act elucidates – partnership as an association between people who have consented to share the gains of a business, the sharing of loss is implicit. Hence, sharing of gains and losses is vital.

Also Read: Advantages of Partnership

The above mentioned is the concept that is explained in detail about the Nature of Partnership for the class 12 students. To know more, stay tuned to BYJU’S.

1 Comment

  1. Chandrasen Kothawale

    I’m very satisfied with information inputted in the commerce link. Thanks a lot.

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