Partnership Firm – Individuals that have stepped into a partnership with each other to conduct a business is generally referred to as “Partners;” jointly referred to as a “Partnership Firm;” as well as the title by which the business is conducted out is referred to as the “Firm Name”
A joint corporation is not really a distinct legal entity different from its founders. It’s just a group identity assigned to the people who make it up. Thus, unlike a corporation that has a different legal body independent from its owners, a company cannot own land or hire employees, nor could it be a debtor or a creditor. It can’t be sue or sued by anyone.
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5 Important Feature of a Partnership Firm
All of the five components listed above should co-exist in order to establish a relationship. If none of these is present, a partnership cannot be formed These five main components of the relationship company are described in detail below.
Contract for Partnership
The partnership is the outcome of the arrangement. It doesn’t come into existence because of the status, the law or inheritance. Therefore, in the event of the death of the father, who had been a partner in the partnership company, the son may seek a stake in the partnership property but could not become a partner until he joins into the very same agreement with other individual involved.
Likewise, HUF members involved in a family business cannot be considered partners because their partnership derives not from any arrangement but from the rank. The “contract” is therefore the absolute basis of the partnership.
The maximum number of partners is 20
Although the partnership is the outcome of the contract, a minimum of 2 individual is required to form a partnership. The Indian Partnership Act, 1932 doesn’t really state much about the highest number of partners in a partnership company however, in accordance with the Companies Act, a partnership comprising of more than 10 persons for a financial business and much more than 20 individuals for any other business will be rendered unlawful. This should therefore be considered to be the highest number of partners in a partnership company.
Only individuals qualified to enter into an agreement may form a partnership firm. People can be normal or artificial. The Company can, as an artificial legal person, join into a partnership agreement if it is allowed to do so by its MOA.
A partnership firm cannot join into a partnership agreement with yet another partnership firm or persons because it is not recognised as a legal person having a distinct legal entity from those of its partners.
The third basic feature of a relationship would be that the partners should have decided to conduct a business. The word “business” is often used in its broadest sense and encompasses every trade, occupation or career. Therefore, if we are to carry out charity work, it would not be a collaboration.
Likewise, whenever a number of people choose to share the profits of a single property or to split between them the goods bought in bulk, there really is no agreement and those persons cannot be considered partners, since they are in no case engaged in the company.
This important aspect ensures that an arrangement to conduct a company should be for the purpose of exchanging profits between all the partners. Thus, there will be no relationship if the company is carried out on a charitable basis and not for profit or even where only one of the individuals is eligible to the full benefit of the business. That being said, the partners can choose to split the profits in any ratio they want.
In order to form a relationship, it is not necessary that the partners decide to share the losses. It is accessible to one or more parties to consent to share all the expenses suffered by the venture.
In addition, the way in which profits/losses need to be divided should be clearly specified in the agreement contract. In the absence of it being specified in the partnership act, the rules of the Partnership Act, 1932 will extend which specify that profits/losses must be shared equally between all partners.
The fifth factor of the concept of a relationship specifies that the business should be conducted out by all or any (one or more) of the partners working with both of them, i.e. there has to be a mutual agency.
A partner is indeed an agent and a principal for oneself or for other partners, i.e. he may connect other people by his actions and maybe linked by the actions of other partners. The value of the aspect of the joint agency comes from the fact that it allows each partner to take out a business on the basis of others.