This article helps you to explain the characteristics of partnership firm…
Partnership firm includes various characteristics like (i) Number of members or partners, (ii) Contractual relationship, (iii) Competence of partners, (iv) Profit Motive, (v) Sharing of profit & loss, (vi) Voluntary registration, (vii) Principal-Agent relationship, (viii) Transfer of Interest, (ix) Legal status, (x) Unlimited liability, (xi) Investment, (xii) Continuos transactions, (xiii) Dissolution of partnership.
Characteristics of Partnership Firm-
The main characteristics of the partnership firm include various points such as:-
1. A number of members or partners:
In every partnership firm, there is two number of minimum partners are required to start a partnership business. The maximum members in partnership business are 50 and 10 in the banking sector. Minor partners cannot be acceptable in the partnership business.
It also consist of various types of partners like an active partner, sleeping partner, nominal partners, partners by holding out, partners in profit only, minor partners, and other partners.
2. Contractual relationship:
The relation or bond between the partners of a partnership business is created by contract. The partners enter into a partnership firm with the help of agreement which may be written, verbal, or implied. If the agreement is in the form of writing, then it is called a partnership deed.
This is a very important or main characteristic point of the partnership firm because, without any agreement, the partnership cannot be formed.
3. Competence of partners:
It is very important for any individual to become eligible to join any partnership firm or business i.e., verification of terms and conditions of the partnership contract is necessary. Thus, lunatics, minors, or insolvent persons are not eligible to become partners.
However, a minor partner will be admitted to the benefits of partnership i.e, he/she can have a share or part in the profits.
4. Profit Motive:
Every partnership firm or partner wants the achievement of a goal and a huge amount of profits because when they make profits, then they will be able to carry their business forward. They generated more sales and more sales generate more profits.
So, that is the reason, this is also a most important characteristic point of the partnership business.
5. Sharing of profit & loss:
The partners can share profits and losses between them according to their distributing ratio as agreed. In the absence of any legal agreement, the profits are shared equally.
For Example– There is a partnership business in which two partners (A &B) have started a business together. A invests Rs. 30000 and B invest Rs. 20000 as per the profit and loss ratio of 3:2. They both are decided if we have any profit and loss in the future, then we will divide all the amounts on the given distributing ratio (3:2).
6. Voluntary registration:
Registration of the partnership business is not necessary but if a partnership business gets registered from a government, then he gets a lot of benefits from them.
For Example– If the firm registered, any partner can file a case against other parties or partners, or a firm can file a suit against outsiders in case of claims, disputes, disagreements, and so on.
7. Principal-Agent relationship:
The partnership business is running with an association of all the partners or any one of them acting for all. This indicates that every partner is work as an agent when he is acting on behalf of other members or partners and he is a principal when others act on his behalf.
Thus, the mutual interest or confidence plays a very essential role to make any partnership business successful.
8. Transfer of Interest:
No partner in this business has the right to transfer or sell their share of interest to any firm or individual without the consent of any partner (whether it is active or sleeping). If any partner sells their share of interest to any other individual, then it will be considered as illegal as per the norms of partnership act.
9. Legal Status:
Legal status defines the legal way of partnership business i.e, the name of the partnership firm, registration number, registered partners, and other legal or situational factors. They define the work of partnership business in under the way of a separate entity.
10. Unlimited Liability:
The whole partners have unlimited liability in nature. They all are fully liable for the debts and obligations of the business firm. Creditors can do claim on the personal properties of any partner or all the partners jointly. Even a single partner may also be called upon to pay the debts of the firm.
Of course, definitely, he can get back their own money due from other partners.
Each partner invests some amount of capital according to their agreement. There are also some partners who play their role without investing any pie of amount. But they invest their time, energy, and skills to their business instead of capital and amount of money.
12. Continuous transactions:
There is no time limit for the continuity of any partnership firm. It will continue until its partners want it. Any misconception, misunderstanding, insolvency or death of a partner may dissolve a partnership business. Dissolution of the partnership agreement does not mean the dissolution of the firm.
The remaining partners can run the business after meeting the claims of outsiders.
13. Dissolution of partnership:
Dissolution of partnership firm is not only a full closure of partnership business, but it can also include the changes in the exisiting agreement among the partners due to a change in the number of partners.
So, this was the explanation of the characteristics of partnership firm or business.