Partnership:
Introduction
A partnership is a relation of mutual trust and faith. To maintain this trust, the partnership accounts must be maintained in an honest, accurate, and equitable manner. Partnership accounts should present a true and fair picture of the partnership business. For this purpose, it is necessary to study the definition of partnership as given in the Partnership Act and the relevant provisions of the Partnership Act which affect the partnership accounts.
Definition of Partnership: Section 4 of the Indian Partnership Act, 1932, defines partnership as follows:
" Partnership is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all."
Features of partnership Business:
Two or more persons: There must at least two or more persons to form a partnership. Partnership Act does not specify the maximum number of persons, but Section 464 of the Companies Act, 2013 empowers the Central Government to prescribe the maximum number of partners in a firm but the number of partners so prescribed cannot be more than 100. The Central Government has prescribed the maximum number of partners in a firm to be 50 vide Rule 10 of the Companies (Miscellaneous) Rules, 2014. Thus, in effect, a partnership firm cannot have more than 50 members.
Lawful business: The business to be carried on by a partnership must always be lawful. Business includes trade, vocation and profession.
Principal-agent relationship: Business of the partnership can be carried out by all the partners or by any of them acting for all the partners. Every partner is an agent of the firm. He can act on behalf of the firm. He is responsible for his acts and also for the acts done on behalf of the other partners.
Profit-sharing: There should be an agreement among the partners to share the profits or losses of the business. It is not essential that all the partners must share losses also.
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