What is partnership? Definition and Characteristics

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Definition

The partnership is a relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all.

Characteristics

  • There must be two or more person to form a partnership.
  • There must be a written or verbal agreement between all the concerned persons.
  • The agreement must be for doing a business.
  • The business may be carried on by all or any one of them acting for all.
  • The gain or loss must be shared by all.

The persons who form a partnership are individually called partners and the collective name given to them is a firm. The maximum number of partners is limited to 10 in case of banking business and 20 in case of trading concern.

Though sharing of gain is a very important element of a partnership business, but not a conclusive proof of being a partner. There are examples that person sharing in the gain, are not considered as partners. For example

  • An employee paid on the basis of profit.
  • A lender receiving a rate of interest varying with the amount of profit.

Partnership relation is based on an agreement that may be written or oral one. Even oral agreement is not necessary, partnership can be implied from the acts of the persons engaged in the enterprise. It is, however, better that agreement be made in writing.

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