Maharashtra Board Class 12 Book Keeping and Accountancy Chapter 1 Introduction to Partnership and Partnership Final Accounts PDF Download

Introduction To Partnership And Partnership Final Accounts

Meaning And Definition Of Partnership

Partnership is an organization where there is an association of two or more persons coming together to carry on a business with a view to share Profit or Losses of a firm.

Definition

Indian Partnership Act 1932 Section 4 defines the partnership as, "It is the relation between persons who have agreed to share the profits of a business carried on by all or anyone of them acting for all."

According to Prof. Handy, "Partnership is the relation existing between persons competent to make contract, who agree to carry on a lawful business in common with a view to earn private gain."

Teacher's Note

Partnership means two or more people working together in a business. For example, two shop owners can become partners and share the profits and losses of their store.

Exam Trick

Remember: Partnership = two or more persons. Just like a cricket team has many players, a partnership has many partners working together.

Points to Remember

Partnership is formed by agreement between two or more persons.
All partners share the profits and losses of the business.
Each partner is personally liable for the business debts.
Partnership is a lawful business arrangement.
The persons in partnership are called partners and together they form a firm.

Features Of Partnership Firm

1) Agreement :- Partnership is a result of agreement between partners. It could be written or oral. A written agreement is preferred so that it can be used as a proof in the court of law and such written agreement is known as "Partnership Deed."

2) Number of Partners :- Minimum two partners are needed to start partnership firm and the maximum number of partners are fifty according to companies Act 2013 (Amended in 2014).

3) Lawful business :- Business undertaken by partnership should be lawful. It cannot undertake business which is not allowed by state. The definition of Partnership also does not permit any illegal business.

4) Sharing of Profit and losses :- The purpose of partnership is to earn maximum profits. Partners have to share profits and losses according to the ratio given in the agreement. If the agreement is silent about the ratio then profit and loss sharing will be equal.

5) Unlimited Liability :- The liability of partners is unlimited joint and several that is, partners are liable till the last rupee in their pocket. If assets of business is not sufficient to pay liabilities, then personal property of partners can be used. If anyone of the partner is declared in solvent then his liability will be borne by the solvent partner.

6) Registrations :- Registration of partnership firm is compulsory only in the state of Maharashtra with effect from 1st April 2005. According to Indian Partnership Act, 1932, registration of partnership firm is optional it means a firm may or may not be registered. Registration of firm merely certifies its existence and it is a process of entering the name of Partnership Firm in the register of Registrar.

7) Joint Ownership and Management :- Each partner is joint owner of the property of the firm, so no partner can use property for personal use. All partners have equal rights in managing the firm. So all partners are jointly responsible for the management of firm.

8) Principal and Agent :- Each partner works in two fold capacities i.e. principal and Agent. A partner acts as a principal of the firm with outsiders and with other partners he acts as an agent.

Teacher's Note

Partners have many responsibilities in the business. Like if you and your friend open a shop together, you both must follow all the partnership rules and share profits fairly.

Exam Trick

Remember: Eight features of partnership - Agreement, Number, Lawful, Sharing, Unlimited liability, Registration, Joint ownership, Principal and Agent. Use the first letters to make a word.

Points to Remember

Partnership needs a written or oral agreement between partners.
Maximum fifty partners allowed in a firm.
The business must be lawful and legal.
Partners have unlimited liability for business debts.
Registration is optional under Indian Partnership Act 1932.

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