PARTNERSHIP

An association of two or more persons engaged in a business enterprise in which the profits and
losses are shared proportionally. The legal definition of a partnership is generally stated as "an
association of two or more persons to carry on as co-owners a business for profit".For a partnership it
is necessary to have a minimum of two parties or persons and maximum capacity of partners is
20,which means that partners should not exceed above 20.
A partnership may be created by a formal written agreement, but may be based on an oral agreement
or just a handshake. Each partner invests a certain amount (money, assets and/or effort) which
establishes an agreed-upon percentage of ownership.

ADVANTAGES OF PARTNERSHIP

Easy Formation
The partnership can be formed easily because no complicated legal formalities are required for
formation. The registration of the form is not compulsory. The cost of formation of partnership is small
and process can be completed quickly.
Larger Capital
There are more persons who can easily collect huge amounts of capital. If the present partners are
not in a position to supply the needed capital, the amount can be borrowed. Moreover , the capital can
also be increased by admitting new partners.
Better Management
The partners may perform those duties for which they are more suitable. In case of important matters
all the partners can get together and decide. This insures more efficiency and increases profits.
High Credit Standing The liability of all the members is also unlimited. It means in case of loss the
personal assets of all the partners can be held liable to meet the claims of the creditors, so the
financial institutions give loans without fear.
More Participation
All the partners work hard to make the partnership firm successful. They now that in case of failure of
business, they will have to bear the loss. Therefore all partners participate in the business activities.
Skilled Employees
In case of partnership, the resources of the firm are larger, so the services of educated, experienced
and skilled persons can be obtained.
Public Relations
The partners personally look after the affairs of the business, so they develop good relations with the
employees and customers and employees which are beneficial for the firm. Direct contact with
customers help to build trust and loyalty.
Flexibility
A partnership is free from legal restrictions. It is formed by an agreement, so the business can be
changed easily. Its objects, membership and capital may be easily adjusted according to changes in
the business conditions.
Decision Making
The interest of minority partner is protected by law. In policy matters all partners must agree. In
ordinary affairs, a dissatisfied partner may withdraw his share and dissolve the firm. Thus the minority
partner enjoys the right of veto. In fact, the law gives each partner the right to be heard and consulted.
Protection of minor partner
In partnership, the interest of minor partner is properly protected. A minor partner enjoys special
protection in a partnership firm. His liability is limited to the extent of his capital contribution. The
protection is beneficial as the death or insanity of partner does not dissolve the firm if in his place his
minor successor is taken as a partner.


Quick Decision
In partnership, quick decisions can be taken regarding business policies which enable a firm to take
advantage of changing market conditions. The decisions are to be taken quickly as fewer persons are
consulted. Thus the risk of missing out on business opportunities from delay in decision making is
lesser in partnership as compared to a company.
Sharing of Risk
A partnership firm enjoys the advantage of sharing risk. Each partner shares risk according to the
terms established in the partnership agreement. The losses suffered by the firm are shared by all
partners.
Possibility of Expansion
A partnership is flexible in its business operations and expansion of business is easy. Firm can
expand its business because of its larger resources, favourable credit standing and managerial ability.
Secrecy
As there is no compulsion to publish its accounts for partnership firm so the business secrecy remains
confined within the partners. This sector is important for successful operation of the business. But
Public Company has to publish all types of accounts by law.
Spirit of co-operation
The success of a partnership firm depends on mutual trust, cooperation and confidence. Profits or
losses of the firm are shared by the partners.
Simplicity in Dissolution
There are no complicated legal requirements for the dissolution of the partnership firm. Partners may
dissolve their business very easily at any time.