Nature of Partnership

Nature of Partnership – Meaning

When two or more people join hands to set up an enterprise and share its gains and losses, they are said to be in a partnership. Section 4 of the Indian Partnership Act 1932 states partnership as the association between people who have consented to share the profits of an enterprise carried by all or any of them acting for all.

People who have entered into a partnership with one another are independently termed as ‘partners’ and comprehensively termed as ‘firm’. The name under which the trade is carried is called the ‘name of the firm’. A partnership enterprise has no distinct legal entity apart from the partners comprising it.

Hence, the vital features of the partnership are as follows:

Two or more persons: In order to manifest a partnership, there should be at least two persons possessing a common goal. To put it in other words, the minimal number of partners in an enterprise can be two. However, there is a constraint on their maximum number of people. 

By the uprightness of Section 464 of the Companies Act 2013, the Central Government is authorised to stipulate a maximum number of partners in an enterprise; however, the number of partners cannot exceed 100. 

Under Rule 10 of the Companies (miscellaneous) Rules 2014, the central government has stipulated the maximum number of partners in an enterprise to be 50. Hence, a partnership enterprise cannot have more than 50 people (partners).

Agreement: It is the outcome of an accord between two or more people to regulate a business and share its gains and losses. The agreement (accord) becomes the basis of the association between the partners. 

Such an agreement is in the written form. An oral agreement is evenhandedly legitimate. In order to avoid controversies, it is always good if the partners have a copy of the written agreement.

Sharing of profit: Another significant component of the partnership is the accord between partners to share the gains and losses of a trading concern. However, the definition held in the Partnership Act elucidates partnership as an association between the people who have consented to share the gains of a business. The sharing of loss is implicit. Hence, the sharing of gains and losses is vital.

Also read: Advantages of Partnership

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