Q.1 Define partnership and its features /characteristics?
Ans: INTRODUCTION OF PARTNERSHIP
“When two or more than two people join to start and run a business, it is called partnership”.
Partnership generally takes place among those persons who are either relative, friend or known to each other.
The person who enter into partnership are individually called partner collectively, it is called a firm and the name under which they carry on their business is called on the firm name. Partnership occurs when a person feels that he cannot run the business solely due to lack/shortages of capital, more losses than expectation or management failure in business.
ACCORDING TO SECTION 4 OF PARTNERSHIP ACTS, 1932:
It is the relation between person who have agreed to share the profit of a business carried on by all or any of them acting for all.
ESSENTIAL ELEMENT OF PARTNERSHIP
The following essentials for constituting a partnership emerge out of the definition according to partnership Act, 1932:
(i) There must be an agreement between the par ties concerned.
(ii) There must be a business, the word “a business” here includes any trend, profession or vocation.
(iii) It must be carried o n by some or all of the partners for the benefits of all of them, (iv) It must be carried on for the purpose of earning profits which would be divided amongst t he partners.
A partnership arises out of an agreement the parties, which may be expressed. It is not necessary that the agreement be writ ten. Partnership agreement may be written or oral but written agreement is better than oral and should be clearly express the intentions of the partners.
2. NUMBER OF PARTNERS
According to partnership Act, 1932, the minimum limit of the partners is two but there is no maximum limit mentioned. According to company’s ordinance of 1984, in case of banking business partnership the maximum numbers is ten (10) and in case of an ordinary partnership the maximum numbers of partner is twenty (20).
According to partnership Act, 1932, the registration of the firm is not compulsory but if the partners like to avail problems unregistered firm they can be get partnership registered and can get the benefits of the registration of partnership firm,
4. PROFITS AND LOSS
The aim of partnership business is to earn profits. Some time business bear loss so the profits and loss of the partnership business is distributed among the partners. It is essential to explain here if the ratio of profits and loss is not, mentioned then the profits and loss is equally divided among the partnership business.
The liability of each partner in partnership business is unlimited. If a partnership becomes insolvent the partners are required to contribute sufficient personal assets to settle the debts of the partnership.
6. ENTRY OF NEW PARTNERS
With the mutual consent of all the partners of the partnership business a new partner can be admitted in the firm.
7. WITHDRAWAL OF PARTNERS
Any partner can be retired from the firm with the mutual consent of all the other partners of the partnership business.
The main object of the partnership is to carry on a any type of business but it should not be illegal according to the law of the country.
9. ENTITY/LEGAL POSITION
If the partnership business is not registered it has no legal entity.
Each partner in partnership business contributes his share in capital according to the agreed ratio.
11. TRANSFER OF SHARE
A partner can transfer his share in partnership business to other with the consent of all the other partners of the partnership business. If other partner do not allow then partner cannot transfer his share to any other person. Any person cannot transfer his share to any other person.
12. MANAGEMENT OF BUSINESS
In partnership business all the partner can participate in the business. However, some time only a few people are allowed to take the charge of management of the partnership business.
13. CHECKING OF BOOKS
In partner business account t books are maintained and are kept at such place where every partner can check the books.
14. DURATION OF PARTNERSHIP
It is not always for fixed period of the limit it may be for indefinite period of time sometime partnership is also formed to completion of particular ventures.
15. MINOR AS A PARTNER
Partnership is a relation resulting from contract and a minor’s agreement is altogether void. Accordingly a minor being incompetent to contract cannot become a partner nor can a partnership be created with a minor as a partner but he c« be admitted to the benefits of an already existing partnership if all the partners agree to admit him.
16. DISSOLUTION OF THE PARTNERSHIP
Dissolution of a partnership may result from a verity of cause such as death of a partner if not otherwise provide in the partnership deed, agreement between partners, insolvency of all the partners or all but one partner, the happening of any event which makes it unlawful for the business to be carried on the other partners of his intention to leave the firm if the partnership is at will, by the order of a court, or if the agreement was for a fixed period of time.
17. IMPLIED AGENCY
Every partner is considered as an agent of his co-partners and the firms. Is follows, therefore, that the partner can bind his co-partner and firm by his dealings with the third parties or outsider. This right is implied in the partnership agreement.
18. NON-TRANSFERABILITY OF INTERESTS
No partners in a partnership can even his interest in the firm to anyone without the prior consent of all other partners- This is based principle that a partner, being an agent himself, cannot further delegate his authority to an outsider.
18. UTMOST COOP FAITH
Every partner in a firm is able to bind other co-partner and the firm with the third parties and outsides by his acts and dealings with them. Hence, the maintenance of utmost good faith by each partner is the essence of the partnership agreement partner must be faithful and disclose all facts true information’s to each other.
19. PA YMENT OF FAX
In partnership every partner pays the tax on his profits personally or individually,
In partnership, mutual co-operation and mutual confidence is an important factor. Without co-operation partnership cannot take place.
Until and unless partnership is not registered, it has no legal entity. So, there is no restriction of the audit of accounts.
23. PARTNERSHIP ACT 1932
In Pakistan, all partnership business is running under partnership Act, 1932.