The following are the basic characteristics of a partnership:
Relationship based on a contract:
A relationship is formed solely by a contract between a group of people known as partners. “The relationship of partnership emerges from contract, not from status,” according to the Partnership Act. While an oral contract is appropriate, it is often preferable to draught a partnership deed that spells out the terms and conditions as well as the rights, responsibilities, and obligations of the partnership. Minors, insolvents, lunatics, and those who are unable to enter into a legal contract are not permitted to form a relationship.
A group of two or more people:
There must be at least two people in a relationship. There is no maximum number of partners in a relationship under the Partnership Act, but under the Companies Act, 1956, the maximum number of partners is 10 in banking and 20 in other company operations.
- Business Existence:
The aim of the group of people must be to conduct some kind of business. There is no relationship where there is no market. We define business as all activities involving the production and distribution of goods and services with the goal of benefit.
Profit Sharing and Earnings:
The arrangement to do business must have the aim of making money and sharing it with all partners. The partnership would not be called a partnership if it is created to do charitable work.
Every partner’s liability for the company is unlimited. Where the assets are insufficient, creditors have the right to recover the firm’s debts from the private property of any or all partners.
All partners may participate in the company, or one or more may act on behalf of other partners. As a consequence, such a partner functions as both an agent and a principal, acting as an agent for other partners while still acting as a principal for himself.
Each partner is an agent with the authority to bind the other for actions performed on behalf of others, such as transactions and sales, borrowing capital, recruiting employees, and so on. The authority exercised by each of the partners is considered as implied authority of the partners, and such an act is claimed to be and regarded as an act of the company.
Transfer of Shares Restrictions:
No partner may sell or move his or her share to a third party in order to make that person a partner in the company. This, however, can only be achieved with the agreement of both partners.
All partners must have complete confidence in one another. Every partner should behave with integrity and in the firm’s best interests. They must keep accurate records and share all details with one another. Many partnership firms fail due to mistrust and distrust among partners.
There Isn’t a Separate Entity:
A partnership is a group of people who are individually known as “partners” and collectively known as “firms.” Legally, a partnership firm is neither a legal entity nor a person with rights separate from the partners who make up the group. It’s just a group of people getting together. Furthermore, the term “firm” is merely a convenient way to refer to the partners; it has no legal significance outside of them.
The relationship will be broken if one of the partners dies, becomes insane, or becomes bankrupt.