Forms of Business Organisation: Characteristics, Advantages, Limitations and Sustainability of Partnership Form

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Partnership

‘Partnership’ is an association of two or more persons who pool their financial and managerial resources and agree to carry on a business and share its profit. The persons who form a partnership are individually known as partners and collectively a firm or partnership firm.

For example: Gopal joins hand with Rahim to start a big grocery shop

Characteristics of Partnership Firm

Characteristics of Partnership Firm

Characteristics of Partnership Firm

Two or More Persons

  • At least two persons are required.

  • Maximum limit on the number of persons is 10 for banking business and 20 for other businesses.

Contractual Relationship

  • Persons who have agreed to join hands must be competent to contract.

  • Minors, lunatics and insolvent persons are not eligible to become the partners.

Sharing Profits and Business

Two or more persons share the income of jointly owned property.

Existence of Lawful Business

Business of which the persons have agreed to share the profit must be lawful.

Principal Agent Relationship

Every partner is the principal as well as the agent of the firm.

Unlimited Liability

  • Partners of the firm have unlimited liability.

  • Liability of a minor partner is limited to the extent of his share in the profits.

Voluntary Registration

Registration of partnership firm is not compulsory. But an unregistered firm suffers from some limitations.

Advantages of Partnership Form

  • Easy to form

  • Availability of larger resources

  • Better decisions

  • Flexibility

  • Sharing of risks

  • Benefits of specialisation

  • Protection of interest

  • Secrecy

Limitation of Partnership Form

  • Unlimited liability

  • Instability

  • Limited capital

  • Non-transferability of share

  • Possibility of conflicts

Suitability of Partnership Form

  • Business activities like construction, providing legal services, medical services etc.

  • Suitable where capital requirement is of a medium size.

  • Business like a wholesale trade, professional services, mercantile houses and small manufacturing units can be successfully run by partnership firms.

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