Features of Partnership

1. Existence of business:
The objective of partnership must be to do
some type of business. Business here means
any activity leading to earn profit persons
joining together and agreed to do charitable
work or for formation of any club for
entertainment would not be treated as
partnership due to absence of the business.
2. Numbers of persons:
There must be at least two or more persons
to form a partnership firm. As per Indian
partnership Act, the minimum number of
person required is to buy it does not
prescribe the maximum limit for the
purpose.
3. Contractual relationship:
There should be a contractual relationship
between the persons forming partnership.
Persons competent to contract can be
partners.

They have to mutually agree and jointly

decide to go for any business activity as per
agreed terms and conditions. This may be
either written or oral form among the
partners.
4. Sharing of Profits:
Business is carried on to share profit and
not to incur losses. The profits generated by
the firm are to bestaned among the partners
on an agreeable proportion. Loss it any has
also to be borne by them on that ratio.
5. Agency:
Partnership contract is based on principle of
agency. Each partner is an agent of other
partners. The business is carried on by all or
any one of them acting on behalf of all other
partners.
6. Utmost good faith:
The partners should have utmost good faith
in each other. They should be just and
honest. They should present true accounts
and must disclose true information to one
another.

7. Unlimited liability:
Like sole proprietorship, every partner has
an unlimited liability in respect of debts of
the firm. If the property or the assets of the
firm are insufficient to meet the claims of
the creditors, the private property of the
partners can be attached to meet the claims
of the creditors.
8. Restriction on transfer of ownership:
A partner cannot transfer his share in
business to an outsider without the consent
of all other partners. This is because the
partnership agreement is based on contract
among individuals.
9. Capital contribution:
Each partner contributes his share in the
capital of the partnership firm. The capital
contribution need not be equal or in any
particular proportion. It must be as per the
agreement each partner is behind to
contribute that amount. A partner may be
admitted to partnership without any capital
contribution.

10. Duration of the partnership:

The existence of the partnership firm
continues at the pleasure of the partners.
Legally of partnership comes to an end, if
any partner dies or becomes insolvent or
retries.
The remaining partners may agree to
continue the business under the original
firms name after settling the claims of the
outgoing partner.
Advantages of Partnership

Capital Due to the nature of

the business, the partners will fund
the business with start up capital.
This means that the more partners
there are, the more money they can
put into the business, which will
allow better flexibility and more
potential for growth. It also means
more potential profit, which will be
equally shared between the
partners.

Flexibility A partnership is
generally easier to form, manage
and run. They are less strictly
regulated than companies, in terms
of the laws governing the formation
and because the partners have the
only say in the way the business is
run (without interference by
shareholders) they are far more
flexible in terms of management, as
long as all the partners can agree.
Shared Responsibility
Partners can share the
responsibility of the running of the
business. This will allow them to
make the most of their abilities.
Rather than splitting the
management and taking an equal
share of each business task, they
might well split the work according
to their skills. So if one partner is
good with figures, they might deal
with the book keeping and accounts,
while the other partner might have a

flare for sales and therefore be the

main sales person for the business.
Decision Making Partners
share the decision making and can
help each other out when they need
to. More partners means more brains
that can be picked for business ideas
and for the solving of problems that
the business encounters.
Disadvantages of Partnership
Disagreements One of the
most obvious disadvantages of
partnership is the danger of
disagreements between the
partners. Obviously people are likely
to have different ideas on how the
business should be run, who should
be doing what and what the best
interests of the business are. This
can lead to disagreements and
disputes which might not only harm
the business, but also the
relationship of those involved. This is
why it is always advisable to draft a

deed of partnership during the

formation period to ensure that
everyone is aware of what
procedures will be in place in case of
disagreement and what will happen
if the partnership is dissolved.
Agreement Because the
partnership is jointly run, it is
necessary that all the partners agree
with things that are being done. This
means that in some circumstances
there are less freedoms with regards
to the management of the business.
Especially compared to sole traders.
However, there is still more flexibility
than with limited companies where
the directors must bow to the will of
the members (shareholders).
Liability Ordinary Partnerships
are subject to unlimited liability,
which means that each of the
partners shares the liability and
financial risks of the business. Which
can be off putting for some people.

This can be countered by the

formation of a limited liability
partnership, which benefits from the
advantages of limited liability
granted to limited companies, while
still taking advantage of the
flexibility of the partnership model.
Taxation One of the major
disadvantages of partnership,
taxation laws mean that partners
must pay tax in the same way as
sole traders, each submitting a Self
Assessment tax return each year.
They are also required to register as
self employed with HM Revenue &
Customs. The current laws mean
that if the partnership (and the
partners) bring in more than a
certain level, then they are subject
to greater levels of personal taxation
than they would be in a limited
company. This means that in most
cases setting up a limited company
would be more beneficial as the
taxation laws are more favourable

(see our article on the Advantages

and Disadvantages of a Limited
Company).
Profit Sharing Partners share
the profits equally. This can lead to
inconsistency where one or more
partners arent putting a fair share of
effort into the running or
management of the business, but
still reaping the rewards.
KINDS OF PARTNER
1.
Active
Partner
(Managing
or Working Partner)
A person who takes active part, in the
affairs and management of the
business is called active partner. He
contributes his shares in the capital
and is also liable to pay the obligations
of firm.
2.
Nominal Partner
He is not in reality a partner of firm
but his name is used as if he is a

member of the firm. He is not entitled

in the profit or loss of the business but
he is liable to all the acts of the firm.
The person who has good prestige and
status is given, the position of nominal
partner.
3.
Sub-Partner
The person who receives a share of
profit from one of the regular partners
is called the Sub-Partner. He is not
liable to pay the debt is of the firm. He
has no rights and privileges against
the firm.
4.
Silent Partner (Silent form
managing point of view)
He is that kind of partner who does not
participate in the affairs of the
business but is known to outsiders as
a partner of the firm. He is liable to
pay the debts of the firm like other
partner.
5.
Secret Partner (Secret from public
point of view)

He is active in the running life of the

firm but public does not know him as
partner of the firm. He pays his share
in the capital and is liable to settle the
creditors of the firm.
6.
Sleeping Partner or Dormant
Partner (Sleeping From Both Points
of View i.e. public and managing)
A person who (a) does not conduct the
management of the firm personally (b)
is not known to the outsiders as a
partner of the firm, is called sleeping
partner. But he invests his amount in
the business and is liable to clear the
debts of the firm. He is also called
dormant partner.
7.
Minor Partner
There is no restriction to join the minor
in the partnership by law. Although he
may become partner but with the
consent of all existing partners. In this
case, he can be admitted to the profits
of the firm only but not losses. He is
not personally liable for the obligations

of the firm. But minor has the right to

inspect and copy .the accounts of the
firm. Within six months of his attaining
maturity, he has to give public notice
whether he wants to remain partner or
not. After his decision, he will deemed
as full fledged partner.
8.
Quasi Partner
A person who has retired from the
running management life of the firm
but he does not withdraw his capital
from the business is know as quasipartner. So his capital is considered as
a loan and he receives interest at the
rate varying with the profit. Really he
is not a partner but he is a Deferred
Creditor.
9.
Senior Partner
A person who brings large portion of
capital in the business is called senior
partner. He has prominent position in
the firm due to his experience, skill,
energy, age and other abilities.
10. Junior Partner

He invests minor portion of capital in

the business and so he has small
share in the profits. He is junior to an
other partner in the firm due to his
age, experience and other factors.
11. Holding
Out
Partner
(Estoppels partner)
A person who declares by word of
mouth as partner of the firm is called
holding out partner. In reality he is not
a regular partner so he is not entitled
to receive share of profit. Such
persons are liable to those parties who
have given credit on the faith of such
representation.
12. Salaried Partner
An individual who does not bring
anything i.e. amount or goods in the
firm but has right to receive salary or
share in the profit or both is named as
salaried partner. He is known to the
outside world as a partner and is liable
for all the acts of the firm like other
partners.

13. partners in Profit Only

He is an individual who gets a share of
the profits only without being liable for
the losses. He does not participate in
the management of the business. He
will be liable to outsiders for all acts of
the firm.

MEANING AND CONTENTS OF

PARTNERSHIP DEED
Partnership firm can be established with an
agreement between the partners. This agreement
may be written or oral. An oral agreement may
be the cause of dispute in future. So, it is better
to have a written agreement in order to avoid
future conflicts. The written agreement duly
signed by the partners is known
as partnership deed or agreement or Articles
of Partnership. It is the written contract between
partners. It contains the term and conditions of
thepartnership.
Partnership deed forms the basis

of partnership. Partnership deed is

adocument containing all the matters according
to which mutual rights, duties and liabilities of
the partners in the conduct and management of
the affairs of the firm are determined. Hence, it
contains the terms and conditions of
thepartnership. It is helpful in preventing and
resolving disputes among the partners.
A partnership deed can be altered at any time
with the consent of all the partners.
The past experiences of partnership firms show
that there are disputes among partners over
many things and these results in the closure of
the firm. If the areas of dispute or conflict are
spotted earlier and a clear understanding is
reached, then the business can run smoothly.
So, partnership deed or agreement is
a document which is prepared to explain
important points so that the chances of conflict
are minimized. Even if there is a dispute it helps
in easier settlement. So, written deed should be
preferred.
Main Content of Partnership Deed

Some of the important clauses to be included in

a partnership deed are as follows:
(1) Name of the firm and Its Address : The deed
should contain of the firm and place of its
business.
(2) Name and Address of Partners : The deed
should also contains the names and address of
all partners.
(3) Nature of Firms Business : The nature of
business proposed to be carried and its limitation
should be included in it.
(4) Duration of Partnership : It the partnership is
established for a fixed duration or for a fixed
work, it should be stated in it.
(5) Partners Capitals : The deed should contain
the total amount of capital and contributions by
each partner.
(6) Interest on Capital : If the partners decide to

change interest on their capitals, the rate should

be mentioned in the deed.
(7) Drawing and Interest on Them : The deed
should contain the limit of drawings by every
partner and the rate of interest to be charged.
(8) Division of Profit : Profit and loss sharing
ratio should be stated in the deed. If it is not
mentioned partners are authorized to
share equally according to Partnership Act.
(9) Partners Salary and Commission : If the
partners decide to pay salary and commission to
the partners, the deed should contain the amount
of salary or commission payable to any partner
for the services rendered to the business.
(10) Rights and Duties of Partners : If any
partner has some special rights and duties
regarding to conducts of business or if the
liability of any partner is limited to the capital
invested by him, these facts should also be
mentioned in it.

(11) Admission and Retirement of Partners ;

After the establishment ofpartnership some new
partners may be admitted and some
may retire from the business. If any definite
procedure is to be adopted at the time
of admission or retirement of partner, it should
be stated in it.
(12) Death of a Partner : The procedure of
calculating the amount due to a deceased partner
and the method of its payment to his successors,
should also be decided and stated in the deed.
(13) Valuation of Goodwill ; The method of
valuation of goodwill at the time ofadmission,
retirement or death of a partner should be also be
clearly stated in it.
(14) Revaluation of Assets and Liabilities ; The
method of revaluation of assets and liabilities
on admission, retirement or death of a partner
should also be clearly stated in it.
(15) Accounts and Audit : The procedure of
keeping accounts and their audit should also be

stated in it.
(16) Dissolution of Partnership ; The deed
should contain the firm and the method of the
final settlement of accounts.
(17) Arbitration Clause ; In case of disputes the
method of appointing arbitrators and their rights
should be clearly mentioned.