Partnership
Class 12 CBSE Entrepreneurship — Unit 2: Entrepreneurial Planning
Meaning and Rationale
“TWO HEADS BEING BETTER THAN ONE.”
“Two or more individuals may form partnership by making written or oral agreement that they will jointly assume full responsibility for the conduct of business.”
“The relationship between persons who agree to carry on a business in common with a view to private gain is partnership.”
“Partnership is a relationship between persons who have agreed to share the profits of a business carried on by all, or any of them acting for all.”
Characteristics of Partnership
Partnership Deed
The deed specifies the name under which the partnership business will be carried on.
The deed describes the type of business the partnership will undertake, including its scope and limitations.
The deed lists the full names and addresses of all partners forming the firm.
The deed specifies the principal place of business and any branch locations of the firm.
The deed records the amount of capital contributed by each partner, whether in cash or kind.
The deed defines the ratio or proportion in which profits and losses will be shared among partners.
The deed states the rate of interest payable on loans and advances made by partners to the firm beyond their capital.
The deed specifies the limit on drawings by partners and the rate of interest charged on such drawings.
The deed outlines any salary, commission, or remuneration payable to partners for their work in the firm.
The deed defines the duties each partner must perform, the powers they can exercise, and their obligations to the firm.
The deed provides for the maintenance of books of accounts and the audit of financial statements.
The deed prescribes the method for valuing goodwill at the time of admission, retirement, or dissolution.
The deed lays down the procedure for settling accounts when a partner retires or the firm is dissolved.
The deed provides a mechanism for resolving disputes among partners through arbitration rather than litigation.
The deed specifies the arrangements to be followed if any partner becomes insolvent.
Consequences of Non-Registration
A partner cannot file a suit against the firm or other partners for enforcing rights from a contract or the Act.
A right from a contract cannot be enforced in any Court by or on behalf of the firm against any third party.
The firm or its partners cannot claim a set-off or other proceedings in a dispute with a third party.
Registration Procedure
Step 1: Prepare the Application
Application must include:
- Name of the firm
- Place of business
- Other places of business
- Date of partners joining
- Full name and permanent address of partners
- Duration of the firm
Note: A partnership firm can be registered at formation or later.
Key Takeaways
Key Takeaways
- Partnership is an association of two or more persons to carry on business as co-owners and share profits and losses.
- Nine essential characteristics define a partnership: Two or more persons, Agreement, Profit sharing, Unlimited liability, Implied authority, Mutual agency, Utmost good faith, Restriction on transfer of shares, and Continuity.
- Mutual agency is the most essential feature — each partner is both a principal and an agent of the other partners.
- A partnership deed is a written agreement signed by partners, stamped, and registered. It should cover all 15 key clauses to avoid future disputes.
- Registration of a partnership firm is NOT compulsory under the Indian Partnership Act, 1932, but non-registration denies critical legal rights.
- A partnership firm can be registered at the time of formation or at any later date by filing an application with the Registrar of Firms.