Introduction
A Partnership is a relationship between the person who has agreed to share profits of the business carried on by all or any of them acting for all. A partnership is a very good form of business entity for small enterprises wherein more than one person decides to contribute the profits to a partnership. The partnership is extensively prevailing because of its content of formation and minimal regulatory conformity.
Partnership Firm
In India, the law relates to the partnership firm that is given under the Indian Partnership Act,1932. The Partnership Act, 1932 lays down the rights and duties of the partners between partners and third persons, which are incidental to the formation of a partnership. According to section 4 of the Indian Partnership Act, a partnership is a relationship between individuals who have agreed to share the profits of a business carried on by all or any one of them acting for everyone.
Therefore, a partnership consists of three necessary elements which are given below: -
A partnership must be an agreement between two or more individuals.
The agreement must be built to contribute to all the profits that are obtained from the business.
The business must be run by all or any of them who represent the Partnership Firm.
Advantages of Partnership Firm
There are many advantages but some of them are mentioned following: -
Easy to form - A partnership firm is easy to form and close without many fulfillments of formalities. A partnership Firm can be formed with an agreement and registration of the partnership firm is also not mandatory.
More Capital - If there are two or more partners then the funds raised can be more. It provides an advantage over various other forms of entities like sole proprietorships where the amount of capital is Limited.
Risk Sharing - According to the Indian Partnership Act of 1932, the risk is shared between all the partners because the burden of losses doesn’t come upon any single person or individual.
Secrecy: - It is not necessary to publish the accounts which lead to the secrecy of its operations and Confidentiality is maintained.
Disadvantages of the Partnership Firm
There are some disadvantages of the Partnership Firm also which are given below: -
Unlimited liability - One of the biggest disadvantages of a partnership firm is that its partners have unlimited liability. It means that the personal assets or property of the partners may be used for paying companies debts.
Lack of continuity - It is the main demerit of the Partnership firm that comes to an end with the death, insolvency, or retirement of any of its partners so the result is a lack of continuity of the partnership Firm. However, if the remaining partners want to continue the Partnership firm, then they have to form a fresh agreement.
Conflicts - When two or more persons are involved then the conflicts always arise. The different opinions of each partner or some issues may lead to disputes between the partners.
Limited resources - It is the restriction on the number of partners. As a resulting partnership firm faces many problems in expansion beyond a certain size.
Rights of a Partners
There are many rights of partners in a Partnership firm but some are given below: -
1. Profit-Sharing
It is the main fundamental right of partners is to share the profits and losses. The profit and loss sharing ratio is not every time mentioned in the partnership agreement. In such cases, the partners might splinter the earnings equally and contribute equally to the losses that are experienced.
2. Taking part in the Business Activity
Every partner has the right to participate in the management of the business, subject to the registration of the partnership firm.
3. Verifying Books of Accounts
Every partner is entitled to participate in accounting and bookkeeping. They can view, inspect, and copy any of the firm’s books of accounts and financial statements which includes the trial balance, profit, loss account, and balance sheet. The right to examine, inspect, and get a copy of the books of accounts would be available to the deceased partner’s heirs, legal representative, or an agent who is lawfully authorized in the event of his or her death.
4. Partners' right to Remuneration
No partner is entitled to receive any income or remuneration in addition to his share of the profits in the firm’s business. However, this rule can be overruled by an express agreement in which case the partner is entitled to payment. Thus, even in the absence of a contract, a partner may claim salary if it is receivable as a result of the firm’s continuous use.
5. Right to be compensated
In the firm, every partner has the right to be repaid by the firm for payments made and liabilities sustained in the usual and lawful conduct of the firm’s business. It also includes acting in an emergency to save the company from a loss if the payments, liabilities, and actions are those that a sensible man would make, incur or perform in the same situation.
Duties of a Partners
There are some duties of the partners in the Partnership Firm as well but some are given below: -
1. To perform duties diligently
According to Section 12 (b) of the Indian Partnership Act, every partner is legally required to attend to his duties that relate to the conduct of the firm’s business. And Under Section 13(a) of the Indian Partnership Act, specifies that a partner is not entitled to remuneration or salary for participating in the running of the business in general. A partner is also required to share his expertise and skills with his partner.
2. To compensate for fraud
According to Section 10 of the Indian Partnership Act, in partnership firm’s partner is responsible for compensating the firm for any losses which are incurred by the firm because of dishonesty conduct by a partner of the firm’s business.
3. To compensate for losses and to keep track of any profit
In a partnership firm, all partners are responsible for the injury of the firm in the same proportion. If a partner makes a profit from the firm’s transaction or from the name of the firm then it is required that the partner return that profit to the firm’s account.
4. To compensate for willful misconduct
In a Partnership firm, a partner must compensate the firm for any damage or losses incurred by carelessness conduct in the partnership firm or business.
Conclusion
It concluded that A Partnership is a relationship between the person who has agreed to share profits of the business carried on by all or any of them acting for all. In India, the law relates to the partnership firm that is given under the Indian Partnership Act, 1932. The Partnership Act, 1932 lays down the rights and duties of the partners between partners and third persons, which are incidental to the formation of a partnership.
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