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Author - Associate Sanjani Shah

“The relation between people who have agreed to share the profits of the business carried on by all or any one of them acting for all.” Define partnership as described and defined by The Indian Partnership Act, 1932.

The basic drawback of the individual proprietorship is in financing and managing an increasing and expanding business. So as a workable option is partnership. Partnership is an answer to the requirement of more and greater investment, different skills and sharing of risk. Owners of partnership firms are individual called ‘partners’ and together they are called as “partnership company “or “partnership firm”.

Under the ‘firm name’ or ‘Company name’ partnership business is carried out. Thus in a way the firm is nothing but an acronym for partners. 

Individual owner or Proprietorship Company of ownership, experience from certain restrictions such as limited resources, restricted skill and unlimited accountability. To increase business or expansion of business requires more capital funds and managerial skills and also involves more possibility of risk. 

Individual owner finds difficult to fulfill these requirements. This needs for more persons to come together, with different skill and edge to start a business. For an instance, a person has a managerial skill but may not have funds. Another person may have capital funds but lack of managerial skill. When these 

Two people come together, bringing their capital funds and managerial skill to organize business, it is called partnership. Because of the limitations or disadvantages of proprietorship, partnership essentially grows.

Planning, production, finance, marketing, HR is the few combinations of functions of business. How efficiently these functions are performed, depends the success of the business. It is very infrequent almost next to impossible for an individual person to manage and be proficient in all the functions at the same time, which in return, hinders the success as well as the growth of a business. This is the principally primary reason why partnerships are important. 

In Partnership Company if one partner can see the opportunity to create a new product, another partner might know a superior way to distribute it. If third partner can provide the administration expertise or industry connections to gets the business producing income in half the time. If business started by a group of people tend to have more distinctive product offerings and the capacity to perform faster.

However, partnership companies will be less likely to hold business incomplete as compared by individual person’s company neither it grow as much, nor do they entirely fail. When more partners come together, will be more faster to fix things and the uplifting and measures needed to start something new or expand business further will be easily and readily available.

Any partners before they invested notable amount of time or money, it is prime important to have partnership agreement that specify expectations and responsibilities. Before signing each partner should have independent legal advice. Determine who will do what, who has the right to make decisions, how these inputs will be measured, how profits and losses will be shared, and what happens when partners in disputes. 

It is voluntary for a partnership company to get registered. It has much benefit if in case a partnership company registered:

1) Registered company partner can file a case against the company or other partners.

2) A case against third parties can be filed by the company.

3) The company can file a case against the partners.

The following feature of a partnership company of business demonstrates the importance of partnerships and prove how it is better than other companies of business:

1) Risk holding: As a team, partners bear the risks involved in running a business. As a result, the rewards in terms of profit can be shared by the partners in an agreed and decided ratio. But rewards in terms of losses can also be shared by the partners in an agreed and decided ratio.

2) Control and Decision making: Day to day functioning and decision making, responsibility can be divided and shared by the partners of the company. With mutual understanding and consent decisions are mostly taken. Thus activities of Partnership Company are under take or managed by combined efforts of all partners.

3) Continuity: Partnership is characterized by lack of uninterrupted of business since death, retirement, insolvency or insanity of any partner can bring an end of partnership business. But if the remaining partners can continue if they desire so, on the basis of fresh new deeds.

In short a partnership is very easy to establish and no inconvenient legal formalities are to be seen to initiate.

Registration of a partnership company is not mandatory. All that is needed is an agreement between the partners, mentioning the terms and nature and condition of business. It is not mandatory to have agreement in writing.