Partnership Firm - Meaning, Features and Partnership Deed

A partnership is a relation of mutual trust and faith. In order to maintain this trust, it is necessary that the partnership accounts must be maintained in honest, accurate and equitable manner. Partnership accounts should present a true and fair picture of the partnership business. For this purpose, it is necessary to study the definition of partnership as given in the Partnership Act and the relevant provisions of the Partnership Act which affect the partnership accounts.

Definition of Partnership: Section 4 of the Indian Partnership Act, 1932, defines partnership as follows:

" Partnership is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all."

Note: - A single person is called as a partner while two or more person or partners are collectively known as a partnership firm. 

Features or Merits or Characteristics of PARTNERSHIP Business

1. Two or more persons: - There must be at least two persons to form a partnership. Partnership Act does not specify the maximum number of persons, but the Indian Companies Act, 1956, restricts the number of partners to 10 for a partnership carrying banking business and 20 in the case of other kinds of business.

2. Agreement: - Partnership is the result of an agreement. It must come into existence by an agreement and not by the operation of law. On the contrary, a Hindu undivided family comes into existence by the operation of law and not by an agreement. Such an agreement can be either oral or in writing. The agreement forms the basis of mutual rights and duties of partners.

3. Profit Motive: - Partnership can be formed for the purpose of carrying on some business with the intention of earning profits and such business must be legal. A joint ownership of some property by itself cannot be called a partnership.

4. Sharing of Profits: - The agreement between the partners must be aimed at sharing the profits of the business. If some persons join hands to run some charitable activity, it will not be called partnership. Further, if a partner is deprived of his right to share the profits of the business, he cannot be called a patner. But it is not necessary that all partners should share the losses also. It may be agreed between the partners that one or more of them shall not be liable for losses.

5. Relationship of Principal and Agent: Each partner is an agent as well as a partner of the firm. An agent, because he can bind the other partners by his acts and a principal because he himself can be bound by the acts of the other partners.

6. Business carried on by all or any of them acting for all: - It means that each partner can participate in the conduct of business and each partner is bound by the acts of other partners with respect to the business of the firm.

A Partnership cannot come into existence in the absence of any one of the above-mentioned features.

PARTNERSHIP DEED

Since a partnership is the outcome of an agreement, it is essential that there must be some terms and conditions agreed upon by all the partners. Such terms and conditions may be either oral or written. The law does not make it compulsory to have a written agreement. However, in order to avoid all misunderstanding and disputes, it is always the best course to have a written agreement duly signed and registered under the Act. Such a written document which contains the terms of the agreement is called 'Partnership Deed'.

Also read Partnership Deed, its Importance and the Rights of Partners.