Concept and Characteristics of Partnership firm
Concept of partnership
Partnership is a form of business organization which has evolved to overcome the shortcomings of sole proprietor. As the size of business expands, one person is unable to provide the necessary capital and managerial skills. Therefore, two or more than two persons form a partnership to carry on business by pooling their financial resources and managerial skills. Thus, partnership is an extension of sole trading concern.
According to Lewis H. Haney,“Partnership is the relation between persons competent to make contract who agreed to carry on a lawful business in common with a wiew of private gain”
According to Nepal Partnership Act 2020 B.S. Clause3(1),“partnership is any business registered in the book of Government, whichis carried by some person in one name sharing the profits with mutual agreement to participate all the partners for each partner or a partner for all the partner in business transaction.”
Characteristics of partnership firm
- Unlimited liability: Proprietor is liable for all the debts of the business. In case the assets are insufficient to meet the debts, the personal property of the proprietor can be attached.
- Difficulty in transfer of shares: Partners cannot transfer their share without the consent of other partners. There may be conflict when done otherwise.
- Higher capital: Many partners invest capitals and there is higher flexibility in capital because new partner can be agreed to be associated and investing can be increased.
- Reduced risk: Partners have right to take part in management. They have the duty to bear risk with proportion too.
- Association of two or more persons: It must be two or more person to enter into contract. Association of two or more persons can only create partnership. In association of two or more persons, maximum and minimum number of persons is not mentioned.
- Agreement:It is set up by agreement between partners. It must be written and legal agreement so that it will reduce dispute.