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According to Section 4 of the Partnership Act, 1932 a partnership is defined as тАЬan agreement between two or more persons who have mutually agreed to share profits or losses that will be carried by all or any one of them acting for allтАЭ. The individuals who setup the business jointly are called as partners and all the partners collectively are known as firm.
Following are the important characteristics of a partnership firm:
1. Number of partners: The minimum number of persons to form a partnership is 2 and the maximum is 50 as per Companies Rules Act, 2014. Any more than the specified limit makes partnership illegal.
2. Partnership Deed: A partnership deed is necessary document that contains all the terms of the partnership and the details about contribution of each partner towards the firm. It should be in written format as it helps in resolving disputes between partners and acts a evidence in d
3. Business: One of the important characteristics of business is that it is formed in order to do legal business. So any kind of business that is deemed illegal makes the partnership illegal
4. Profit/Loss Sharing: Partners are supposed to take profit and loss as per the ratio that was agreed at the time of partnership.
5. Liability: Firm has unlimited liability and the partners of the firm need to pay from the personal asset if the firm is unable to pay to any concerned third party
6. Mutual Agency: The firm is an agency and all the partners are its agents. Every partner is an agent and binds other partners by his/her act while at the same time is bound by other partners actions.