Characteristics of Partnership Business

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Characteristics of Partnership

The main characteristics of a partnership organization are as follows:

    1. Two or More Persons
    2. Mutual Agreement
    3. Joint Management and Control
    4. Sharing of Profit
    5. Unlimited Liability
    6. Absence of Separate Entity
    7. Mutual Agency
    8. Restriction on Transfer of Interest

Characteristics of Partnership

  1. Two or More Persons

Two or more persons are necessary to conduct a partnership business organization. Generally, the number of persons should not be more than 10 for conducting banking business and for other businesses not exceeding 20. So, a partnership business organization functions under ownership of two or more persons.

  1. Mutual Agreement

A partnership business organization comes into existence from mutual agreement between two or more persons. The fundamental characteristic of a partnership organization is the mutual agreement among persons wishing to conduct a partnership firm. According to Nepal’s ‘Partnership Act’, an application form must be submitted for registration enclosing with the deed of agreement signed by partners desiring to conduct partnership business. But in some other countries, oral agreement also is given legal recognition.

  1. Joint Management and Control

Management and control of partnership business is done according to the agreement either by all partners jointly or by some partners or by any one of them on behalf of all the partners. Except for restriction by the deed or agreement, all the partners have the rights to manage and control the partnership business.

  1. Sharing of Profit

The purpose of entering into agreement for any business should be to make profit. The agreement should also contain the terms and conditions of sharing the profit and also in case of loss, bearing it mutually by the partners.

  1. Unlimited Liability

The partners of a partnership business also have unlimited liability as in the sole trading concern. The only difference is that in a sole trading concern all the risks are borne by a single entrepreneur whereas they are borne by two or more partners in a partnership business. Unlimited liability means the partners’ liability is not limited only to the capital they have invested in a partnership firm. Their personal properties also can be used for the liability of the partnership firm.

Characteristics of Partnership Business
Characteristics of Partnership
  1. Absence of Separate Entity

Legally, there is no separate existence of a partnership firm from its partners. The person who takes part in a partnership firm is personally ‘a partner’ and jointly is supposed to be ‘firm’. Section 3 (3) of the Partnership Act, 2020, of Nepal mentions, “A partnership business firm cannot be any person out of its partners” This means the law does not accept any difference between a partnership firm and its partners. The firm itself becomes responsible for any work done on behalf of the firm by any of its partners. But each partner is free to have any personal agreement.

  1. Mutual Agency

Each partner of a firm works as a principal and an agent at a time, principal for himself and agent for other partners. He conducts business on behalf of the firm and can sign any deed of agreement with third party. His work makes all the partners responsible just as an agent by doing something on behalf of his firm and makes his principal responsible.

  1. Restriction on Transfer of Interest

Not any of the partners of a firm can transfer his interest/ownership to any other persons. To do so, it is compulsory to take consent of all the partners. Even if one of the partners is opposed to him, interest of ownership of a partnership firm cannot be transferred.

In short, ownership of two or more persons, mutual agreement, joint management and control, sharing of profit and loss, unlimited liability, no separate existence of partners and partnership firm, mutual agency, restriction on transfer of interest, etc., are the main characteristics of a partnership business organization.

 

 

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