What are the Characteristics of Partnership?

The Characteristics of Partnership

Following are the essential characteristics of a partnership firm:

Two or more persons: Partnership implies business by a group of persons.There must be atleast two persons to bring partnership into existence. partnership Act has not prescribed any maximum limit on partners but Companies Act has prescribed a limit of 10 persons if it is a banking business and 20 persons for other business. If the number exceeds these limits then the business must be registered as a joint stock company otherwise it will be illegal.

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contractual Relation: A partnership is a contractual relationship arising out of an agreement among the partners. A person does not become a partner out of his status as is the case in joint hindu family. Since a contract is essential, persons entering in partnership must be competent to enter into a contract. The agreement among partners may be oral or in writing. A written agreement or deed is preferred because it helps in resolving some disputes among partners later on.

Lawful Business: A partnership agreement must be to run a lawful business. Any understanding to run an unlawful business will be illegal hence no partnership.

Sharing of profits: An agreement among partners should provide for sharing of profits and losses. A charitable trust cannot be called partnership because there is no sharing of profits. Profit sharing is only a prima facia test of partnership but not a conclusive proof. The employees of a business may also share profits but they are not the partners.

No Separate Legal Existence: A partnership firm has no legal entity of its own. The firm and the partners are one and the same. A firm is only a name to the collective name of partners. No firm can exist without partners. The rights ad liabilities of the partners are the rights and liabilities of the firm. Management of the firm vests in partners who are its owners also.


Unlimited Liability: Each and every partner is liable jointly and severally for the obligations of the partnership firm. If assets of the business are not sufficient to meet the liabilities of creditors then private property of partners can be used to meet them. The creditors can claim their dues from anyone or all the partners. If these liabilities are met by one partner then he is entitled to receive ratable contributions from other partners.

Restriction on Transfer of Shares: No partner can transfer his interest in the firm (except to an existing partner0 to an outsider without the consent of all other partners. He can do so only with the unanimous consent of all other partners. It is based on the principle that a partner being an agent of the firm cannot delegate his authority unilaterally to outsiders.

Utmost Good Faith: The very basis of partnership business is good faith and mutual trust. Each and every partner should act honestly and fairly in the conduct of business. A firm cannot be run if there is suspicion among partners. Partners must have faith in each other for running the business smoothly.

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