Partnership Firm and Partner definition Types

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Partnership Firm

Definition Partnership Firm

Partnership form of business organization was developed as an effort to overcome the demerits of a sole trading concern such as limited capital, lack of managerial efficiency and expertise, limited operational area etc. This type of business was originated with a view to collecting more capital, providing more quality, efficiency and experience, managing as well as controlling with more efficiency, receiving more profit through specialization and division of labour, and sharing risks and bearing the loss or profit among the members of the firm.

 

Historically, partnership form of business was first started in Rome. In the beginning, organizations of family members were formed. They were organizations called ‘Societies ‘. Such organizations used to collect  fish, do businesses and conduct  small firms of handicrafts, fine arts etc.

 

In fact, most of the characteristics of a modern partnership firm were developed from the mutual relation of family members of those days. According to W. R. Spriengl, Egyptians, Greeks and Romans were also acquainted with the organization of partnership business. However, fully developed form of partnership business appeared in Italy. Today, partnership form of business organization has become popular, and can be found everywhere.

 

Partnership is an association of two or more persons who agree to conduct any kind of legally allowed business and divide share of profit among them. Such a business is conducted collectively or by a group of some members or any one member representing all of them. A person who agrees to enter into partnership is called ‘Partner’, and the business organization is called ‘Partnership Firm’. Legally permissible persons enter into an agreement to jointly conduct a business firm with the purpose of sharing profit or loss among them. Such a type of business firm is called partnership business organization.

Different scholars have defined partnership business organization as follows:

Kimball & Kimball define, “A partnership firm, as it is often called, is then a group of men, who have joined capital or services for prosecution of some enterprises.”

In this definition of the Kimball’s two elements ‘agreement’ and ‘personal profit motive’ necessary for conducting partnership business are not included.

Prof. L. H. Haney define, “Partnership is the relation existing between persons competent to make contracts who agree to carry on a lawful business in common with a view to private gain.”

 

According to this definition, partnership is the mutual relationship of two or more persons legally permissible to enter into a contract. This definition has also given emphasis on agreement for conducting lawful business and sharing profit.

 

Dr. John A Subin defines, “Two or more individuals may from a partnership by making a written or oral agreement that they will jointly assume full responsibility for the conduct of a business.”

 

This definition has given emphasis on the need of both written or oral agreement and joint responsibility for conducting a partnership firm.

In accordance with Section 3 (1) of Partnership Act, 2020, “Partnership refers to any business, with any single name registered in the government’s register book as per this Act, conducted by a team of persons entering into mutual agreement to take part in business for all partners by each partner or for any partner by all partners so as to divide share of profit.” In this definition, the main aspects of partnership-association of persons, division of profit, mutual contract, registration in government record etc. have been included.

 

In this way, partnership is mutual association of two or more persons who enter into agreement to conduct business and divide profit.  There is provision that such deed of agreement should be in the written form and registered in government’s record book.

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