Partnership is an association of two or more individuals (but not more than 20) who agree to share the profits of a lawful business which is managed and carried on either by all or by any, or some of them acting for all. Easy to form Favorable credit standing Large capital Greater management ability Union of business ability Profit incentive Advantages of secrecy Retention of a skilled worker

By on 14-11-2018

ADVANTAGES OF PARTNERSHIP FORM OF BUSINESS ORGANIZATION

MEANING

 Partnership is an association of two or more individuals (but not more than 20) who agree to share the profits of a lawful business which is managed and carried on either by all or by any, or some of them acting for all. According to Haney, “Partnership is the relation between persons competing to make contract who agree to carry on a lawful business In common with a view of private gain.” The formation of partnership is easy and simple. It is formed to meet the need for” more capital, effective supervision and control, greater specialization, division of work between proprietors and for spreading of risk Persons from similar background or persons of different ability and skills, may join together to carry on a business. Each member of such a group is individually known as ‘partner’ and collectively the members are known as a ‘partnership firm’. These firms are governed by the Indian Partnership Act, 1932.

 CHARACTERISTICS

 (i) NUMBER OF PARTNERS: A minimum of two persons are required to start a partnership business. The maximum membership limit is 10 in case of banking business and 20 in case of all other types of business.

(ii) CONTRACTUAL RELATIONSHIP: The relation between the partners of a partnership firm is created by contract. The partners enter into partnership through an agreement which may be verbal, written or implied. If the agreement is in writing it is known as a ‘Partnership Deed’.

(iii) COMPETENCE OF PARTNERS: Since individuals have to enter into a contract to become partners, they must be competent enough to do so. Thus, minors, lunatics and insolvent persons are not eligible to become partners. However, a minor can be admitted to the benefits of partnership i.e. he can have a share in the profits.

(iv) SHARING OF PROFIT AND LOSS: The partners can share profit in any ratio as agreed. In the absence of an agreement, they share it equally.

(v) UNLIMITED LIABILITY: The partners have unlimited liability. They are liable jointly and severally for the debts and obligations of the firm. Creditors can lay claim on the personal properties of any individual partner or all the partners jointly. Even a single partner may be called upon to pay the debts of the firm. Of course, he can get back the money due from other partners. The liability of a minor is, however, limited to the extent of his share in the profits, in case of dissolution of a firm.

(vi) PRINCIPAL-AGENT RELATIONSHIP: The business in a partnership firm may be carried on by all the partners or any one of them acting for all. This means that every partner is an agent when he is acting on behalf of others and he is a principal when others act on his behalf. It is, therefore, essential that there should be mutual trust and faith among the partners in the interest of the firm.

(vii) TRANSFER OF INTEREST: No partner can sell or transfer his interest in the firm to anyone without the consent of other partners.

(viii) LEGAL STATUS: A partnership firm is just a name for the business as a whole. The firm means partners and the partners mean the firm. Law does not recognize the firm as a separate entity distinct from the partners

(ix) VOLUNTARY REGISTRATION: Registration of partnership is not compulsory. But since registration entitles the firm to several benefits, it is considered desirable. For example, if it is registered, any partner can file a case against other partners, or a firm can file a suit against outsiders in case of disputes, claims, disagreements, etc.

(x) DISSOLUTION OF PARTNERSHIP: Dissolution of partnership implies not only a complete closure or termination of partnership business, but it also includes any change in the existing agreement among the partners due to a change in the number of partners.

 Advantages of Partnership Firm

 (i) EASY TO FORM: The partnership, like the sole proprietorship, can be easily organized. There are no complicated legal formalities involved in the establishment of partnership business. The partners enter into a partnership agreement and start business.

(ii) FAVORABLE CREDIT STANDING: The partnership enjoys a better credit rating in the eyes of creditors. As the liability of each partner in the organization is unlimited the financial institution can safely advance loans to the firms. 
(iii) LARGE CAPITAL: In case of sole proprietorship, the capital is limited to the savings of one owner or his borrowing capacity. Partnership can bring more capital to the business by the joint efforts of the partners. The partnership is normally in strong position to raise capita and expand the business.

(iv) GREATER MANAGEMENT ABILITY: As there are many partners involved in the operation of a business, the firm can distribute the duties and responsibilities to each partner for which one is best qualified and suited. Division of labour and specialization, thus, can promote efficiency of the firm.

(v) UNION OF BUSINESS ABILITY: There is a bid age saying that two heads are better than one. In case of partner the partner mutually consults each other about the lay out, production procedure, marketing channels, etc. and as a result, a wise course of procedure results

(vi) PROFIT INCENTIVE: The profits are shared by the partners as per agreement. They are encouraged to do more work to earn more profit. Higher the profits, higher will be the partners share.

(vii) ADVANTAGES OF SECRECY: The partners can keep the business secrets to themselves. The firm is not required by law to publish its profit and loss account and balance sheet.

(viii) RETENTION OF A SKILLED WORKER: If an employee in the partnership business is found to be a man of outstanding talent and ability, he with the mutual consultation of other partners can be given a status of a partner in the business.

(ix) BRAKE ON HASTY DECISIONS: As liability of partners is unlimited, the partners, therefore, tend to be careful in taking business decisions. They adopt sound practices in the conduct of business. There is a brake on hasty decisions.

(x) SPECIAL PROTECTION TO MINOR: A death or lunacy of a partner may not cause dissolution of the partnership. His minor can be admitted only to the benefits of partners with the consent of other partners.

(xi) INCREASE IN THE SPIRIT OF CO-OPERATION: The success of business depends upon mutual trust and cooperation of the partners. The partners are fully aware that a sight difference can cause the end of partnership. This increases in them the sprit of working together.

(xii) TAX ADVANTAGE: The profits of a registered firm, after payment of super fax, are divided among the partners. They pay tax to the government on their shares of profit. Thus the partners of registered firm get the benefit of lower assessment.

(xiii) EASE OF DISSOLUTION: The partnership can also be legally dissolved much difficult by mutual consent of the partners or in accordance with a contract by the partners. There are no formal documents required to be drawn up as in the case of a joint stock company.