The limitation and deficiency of a sole trader are that lack of limited financial resources, limited managerial skills and concentrated risk led to the emergence of partnership as a form of organisation. When two or more persons join together in business with common ownership and management under an agreement, it is known as a PARTNERSHIP.
PARTNERSHIP MEANS THE RELATION EXISTING BETWEEN PERSONS WHO AGREE TO CARRY ON A BUSINESS IN COMMON WITH A VIEW TO PRIVATE GAIN.
1.Two or more person: There must be a minimum two person to form a partnership. the partnership act fixes no maximum on the number of partners of a partnership firm.
2.Agreement: The relation of partnership arises from contract and not from status.it does not arise because of natural love and affection or because of birth of a family. It arises because of natural love and affection or because of birth in a family. it arises only as an outcome of a contact betweeen persons who are competent to enter incompetent to enter into a valid contract cannot enter into a partnership.
3.Lawful business: The partners must agree to carry on some lawful business. The mere holding of property unless it is accompanied activites like production and or distribution of goods and services .
4. Sharing of profits: There must be an agreement between the partners to share the profits (and loss) of the business .
5. Agency partnership : There must be an agency relationship between the oatners Every partner is a propritor as well as an agent of the firm . the business of the firm may be carried on by all or any of them acting for all.Each partner is entitled to take part in manangemnt of the day to day business of the firm and to represent other partners in dealing with third parties.
6.Unlimited liability: As a result of the contractural relationship between the partners of a firm, and all the partners are liable jointly and severally for all debts and obligations of the firm to an unlimed extent.it means that taht if the assets of the business are not sufficent to meet the amount of the creditors then the patners themselves have to pay the creditors from their personal assets .
#ADVANTAGES OF PARTNERSHIP
1.Ease of formation: Formation of a partnership is a simplre process. There are no long formalities involved in its formation as in case of a company. An agreement which may be oral or written is sufficent to enter into partnershp.Registration of the firm is not necessry but if the owner wants to get the firm registered then the process is very simple.
2.Flexibility: The firm can undertake any kind of business agreed upon by all the partners . Moreover, there are not much restictions under the patnership act on the manner and mode of management of the firm’s opertaions . Capital profit sharing ratio , pricing and other terms and conditions of the patnership can be changed easily .
3.Matching of ownership and control: The partners who are the propritors of the firm can also participate in the mangemnt of the business . Moreover thers is a relationship between the efforts and rewards as in case of a sole trader. This acts as a motivating factor for the partners to work hard for the success of the business .
4.Impact of unlimited liability : The partners are severally and jointly liable for the debts of the firm upto an unlimited extent. the compels them to conduct business carefuly by acting as a brake on hasty and reckless decisions .
5.Secrecy: Important secrets of a patnership firm can be maintqined as it is not compulsory for it to get its accounts audited and published .
#DISADVANTAGES OF PARTNERSHIP
1.Limited resources: A partnership firm has a limited number of partners because of which it may not be able to raise as much capital as a company can.it may not be able to expand its operations beyond a certain limit .
2.Mutual conflicts : All the partners can participate in the management of the business but differnence in their skills , capacity and foresightedness may make a ‘MESS’ of the business of the firm .
3.Unlimited liabilty: Unlimited liability of the partners, jointly and severally , discourages the formation of a partnership because crediotrs can make any or all the partners liable and recover their dues even from the private property of .partners .
4. Delay in decison making : The consent of all partners is required in order to take all the policy decisions. It may lead to a delay in decion making.
5.Risk of implied agency : Due to the agency between the partners , the acts of a partner are binding on the firms as well as the other partners . a dishonest or incompetent partner may bring disaster for the other partners..
6.Non-transferability of interset : A partner cannot transfer his interest in the firm to outsiders without the unanimous of all other partners
7.Disruption in continuity: the continuity in patnership is uncertain .the business amy come to end on the death , bankrupy or luncy of any one of the partners.