Partnership - I

As the business expands, one needs more capital and larger number people to manage the business and share its risks. In such a situation, people usualy adopt the partneship form of organisation. As the partnership firm comes into existence when two or more person come together to establish business and share its profits. On many issues affecting distribution of profits, there may not be any specific agreement between the partners. In such a situation the provisions of the Indian partnership Act, 1932 apply. Similarly, Calculation of Intrest on capital, Interest on drawing and maintences of partners capital accounts have their own peculiarities. Not only that a variety of adjustments are required on the death of a partner or when a new partner is admitted and so on. These peculiar situation need specific treatment in accounting that need to be clarified.

NATURE OF PARTNERSHIP

When two or more person join hands to set up a business and share its profits and losses, they are said to be in partnership. According to the section 4 of the Indian Partnership Act, 1932, relation between person who have agreed to share the profits of a business carried on by all or any of them acting for all.

Persons who have entered into partnership with one another are individually caleed partners and collectively call "Firm". The named under which the business is carried is called 'Firm Name'. A partnership firm has no separate legal entity, apart from the partners constituting it.

The essential features of partnership are:-

1. Two or more Persons:- In order to form Partnership, there should be at least two persons coming together for a common goal.

2. Agreement:- Partnership is the result of an agreement between two or more persons to do business and share it profits and losses. Agreement can be written form or oral. But in order to avoid disputes, it is prefered that the partners have a written agreement.

3. Business:- The agreement should be to carry on some busines. Mere co - ownership of a property does not amount to partnership.

4. Mutual Agency:- The business of a partnership concern may be carried on by all the partners or any of them acting for all. This statement has two important implications:-

(a) Every partner is entitled to participate in the conduct of the affairs of its business.

(b) Each partner carrying on the business is the principles as well as the agent for all the other partners. Relationship of mutual agency is so important that one can say that there would be no partnership if the element of mutual agency is absent.

5. Sharing of Profit: - Another important element of partnership is that, the agreement between partners must be to share profits and losses of a business. Thus, Sharing of Profits and Losses is important. If some chartible activity, it will not be termed as Partnership.

6. Liability of Partnership: - Each partner is liable jointly with all the other partners and also severaly to the third party for all the acts of the firm done while he is partner. Not only that the liability of partner for out of the firm is also unlimited. This implies that his private assets can also be used for paying off the firm's debts.