Defining and Analysing the Characteristics of Partnership

DEFINITION OF PARTNERSHIP

Section 4 of the INDIAN PARTNERSHIP ACT, 1932 defines partnership as follows; “Partnership” is the relation between persons 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 called individually “partners” and collectively a “firm”, and the name under which their business is carried on is called the “firm name”.

NATURE OF PARTNERSHIP FIRM

When one is starting a business, one may form a sole proprietorship when the business is small. The problem with this kind of business is that it cannot grow beyond a certain limit. This is because a sole proprietorship will not be readily sponsored by banks other sources of finance.

Also the amount of money that the sole proprietor can contribute to the business “alone” is not very high. Besides this, the sole proprietor has to take wise decisions in running the business. If he is unable to do so, the business will not be very successful and will not grow.

A sole proprietor might be an expert at marketing or might be technically strong. But it is not likely that he will be strong in all the fields that are important for making wise and successful business decisions.

For all the above reasons, one may choose to form a partnership firm right from the start or later change their firm to a partnership firm. So, one may start a partnership firm with the objective of pulling in people so that more capital is generated or making specifically skilled people partners so that wise business decisions may be made.

Before a partnership is formed, a “partnership deed” should be prepared. This partnership deed may be oral or in writing. However it is wise to make sure that the partnership deed is in writing so that future conflicts may be resolved. More about the partnership deed shall be explained ahead.

To understand all the characteristics of a partnership consider the following:

Two or more members:

At least two members are required to start a partnership business. But the number of members should not exceed 10 in case of “banking business” and 20 in case of “other business”. If the number of members exceeds this maximum limit, then that business is not called as a partnership business legally. (All the rules stated in this complete article are for a business in India)

Partnership agreement:

Whenever you think of starting a partnership business, there must be an agreement between all the partners. This agreement must contain-

The amount of initial capital contributed by each partner

Profit or loss sharing ratio for each partner

Salary or commission payable to the partners, if any

Duration of business, if any

Name and address of the partners and the firm

Duties and powers of each partner;

Nature and place of business; and

Any other terms and conditions to run the business

The partnership deed is usually not very hard to prepare through a trusted local lawyer.

Lawful business:

The partners should always carry on any kind of lawful business. To start a business in smuggling, black marketing, etc., is not termed as a partnership business in the eye of the law. Again, doing social work is not termed as a partnership business.

Competence of partners:

Since individuals join hands to become partners, it is necessary that they must be “competent” to enter into a partnership. Thus, minors, lunatics and insolvent people are not eligible to become partners. However, a minor can be admitted to the benefits of partnership i.e., he can have a share in the profits only.

Sharing of profits :

The main objective of every partnership firm is to make and share the profits of the business. In the absence of any “agreement” for profit sharing, it should be shared “equally” among the partners. Suppose, there are two partners in the business and they earn a profit of Rs.20,000. They may share the profits equally i.e., Rs.10,000 each or in any other agreed proportion, say one forth and three fourth i.e. Rs.5,000/- and Rs.15,000/-

Unlimited liability :

Just like a sole proprietorship, the liability of partners in a partnership is also unlimited. This means, if the assets of the firm are insufficient to meet the liabilities, the personal properties of the partners, if any, can be utilized to meet the business liabilities. Suppose, the firm has to make payment of Rs.25,000/- to the suppliers for some goods. The partners are able to arrange for only Rs.19, 000/- from the business. The balance amount, of Rs.6, 000/- will have to be arranged from the personal properties and assets of the partners

PARTNERSHIP DEED

The deed of partnership is a legally binding agreement between the partners who are in business together. It describes how the partnership will be run and the rights and duties of the partners themselves .It’s not necessary to have a deed of partnership in order to set up a partnership, but it’s a good idea, as it will help to avoid misunderstandings and disputes between partners in the future. If the partnership does not have a deed, it will be governed by the terms of the Partnership Act 1890. This does not offer solutions to many of the problems that can arise and may not suit the way that you and your partners want to work together.

As well as giving basic information about the partnership, such as its business name and the names of the partners, its type of business and maybe the start date (possibly also the closing date or date when the agreement needs to be renewed), the deed will usually set out:

the amount of capital that each partner is to contribute to the business

the way in which partners will share profits or losses, and whether any of the partners should be paid a salary

working arrangements, such as how much time each partner should contribute to the business, who does what management tasks and what type of decisions need collective agreement between the partners

changes to the partnership, such as how new partners can be appointed and what happens if a partner dies or wishes to leave the partnership

THE INDIAN PARTNERSHIP ACT 1932

Application for the registration of firm by the name A.P. MANUFACTUERER LTD. presented to the Register of firms filling by Mr. AADESH.

We, the undersigned, being the partners of the firm Mr. AADESH, Miss. SHUBLEEN and Mr. RAMCHANDER hereby apply for registration of the said firm and for that purpose supply the following particulars, pursuant to section 58 of the Indian Partnership act, 1932.

The Firm’s name A.P. MANUFACTUERER LTD.

Place of business (a) JALANDHARCITY

(b) YAMUNANAGAR

Name of partners

Date of joining

the firm

Permanent address

of partners

Mr. AADESH

Miss. SHUBLEEN

Mr. RAMCHANDER

1stJan, 08

1stJan, 08

1stJan, 08

123, Udhay Nagar, Nakodar Road, Jalandhar

Duration of the Firm is 10 years.

Sign. of the partners

………………………….

Sign. of authorized agents

………………………………

Date: 1st Jan, 08

N.B.-This form must be signed by all Partners or their agents specially authorized in this behalf in the

presence of witness or witnesses who must be either a Gazette officer, Advocate Attorney, Pleader or Honorary Magistrate.

I AADESH S/O Sh. Y.P. DHALL years of age of … … … … religion, do hereby declare that the above statement is true and correct to the best of my knowledge and belief.

Date:

Witness… … … Signature……..

I SHUBLEEN KOUR D/O Sh. GURMUKH SINGH years of age of … … … religion, do hereby declare that the above statement is true and correct to the best of my knowledge and belief.

Date:

Witness… … … … Signature… … …

I RAMCHANDER s/o Sh. ……………years of age of … … …… … .religion, do hereby declare that the above statement is true and correct to the best of my knowledge and belief.

Date:

Witness… … … … … … Signature… … …

Partnership deed

This deed of Partnership executed on this 200 day of Jan. 2008 at Jalandhar between:

Mr. AADESH S/O Sh. Y.P.DHALL R/O JALANDHAR. (WORKING PARTNER)

Miss. SHUBLEEN S/O Sh. GURMUKH SINGH R/O AMRITSAR. (WORKING PARTNER)

Mr. RAMCHANDER S/O Sh. …………. R/O RAJASTHAN. (WORKING PARTNER)

Whereas the parties mentioned above have agreed to carry on the business of manufacturing of washing machine, geyser and other electrical appliances and sheet fabrication under name & style of A.P MANUFACTURER LTD. 123 Nakodar road, Jalandhar city.

All the parties hereinafter referred as the partners (hereinafter respectively called as partners which expression shall include heirs, executers, administrator and representatives of respective parties.)

Whereas all the parties have decided to carry on partnership business under the name & style of A.P MANUFACTUERER LTD. Under the terms and conditions orally settled between them which they now have resolved to reduce into writing as under:

Now This Is Deed of Partnership Witnesses as under:

That partnership deed shall be deemed to commence with effect from 01-01-2008.

That the partnership business shall be carried on under the name & style of A.P MANUFACTUERER LTD.

That the partnership business shall be carried on at 123, Nakodar road, Jalandhar city. But it may be extended or shifted to some other place or places of business with the consent of partners.

That the partnership business shall deal in business of manufacturing and sale of washing machine, geysers and such other business as the partners may decide from time to time.

In partnership the following capital is contributed by the partners:

Names of partners

Rs. (in lacks)

Mr. AADESH

Miss. SHUBLEEN KAUR

Mr. RAMCHANDER

3

3.5

2.5

That the capital for the partnership business shall be contributed by the partners in routine as decided from time to time. The firm shall pay interest at such mutually agreed rate 3.5% but subject to such restrictions as contained under the income tax act to the partners on the amount of capital contribution.

If any partner uses drawings, the 5%age interest will be charged on used drawings.

Rate of interest on capital is 6%age.

In this partnership the profits/losses will be divided in following ratio

Mr. AADESH

Miss. SHUBLEEN KAUR

Mr. RAMCHANDER

1/4

2/4

1/4

Goodwill of the firm is Rs. 3, 00,000.

The following agreements made by A.P MANUFACTURERS:

This agreement is made and entered into Delhi, on 7th Jan, 08 between the manager of A.P MANUFACTURERS LTD. Mr. Ramchander having office at Yamuna nagar and the manager of Jainson traders Mr. Malkha Singh having address at Haryana.

Whereas JAINSON TRADERS has finalized/agreed to provide raw material to A.P MANUFACTURERS LTD.

The list of raw material is given below:

Thirty electric motors of 2Hp.

Ten sheets of steel of size 48’’x96’’.

Five electric heaters for small size geysers.

For the given list of raw material the amount of Rs. 1, 50,000 will be paid after delivery.

This agreement is made and entered into Chandigarh, on 17th Jan. 08 between Miss. Shubleen having office at Yamuna nagar and the manager of Ambani traders Mr. Dinesh having address at Patiala .

In this contract, AMBANI TRADERS has finalized to paint the parts of electrical appliances and plastic sheets provided to them by A.P MANUFACTURERS LTD.

After the completion of contract, the amount of Rs 20,000 will be given to Ambani Traders.

This agreement is made and entered into Ludhiana, on 28th Jan. 08 between the manager of A.P MANUFACTURERS Mr. Aadesh having office at Jalandhar and the agent of YAMUNA STEELS LTD. Mr. Talveer Singh having office at Ambala.

Whereas A.P MANUFACTURERS agreed to sale of machinery for Rs.1,00,000 to YAMUNA STEELS LTD. through the agent Mr. TALVEER SINGH. The 75% of payment will be received in advance and rest of the amount after delivery.

This agreement is made and entered into Delhi, on 27th Feb. 08 between Mr. Aadesh having office at Yamuna nagar and the manager of Parbhat Industries Mr. Alekh.

Whereas PARBHAT INDUSTRIES has agreed to purchase the following items from A.P Manufacturers.

Five Washing machines.

Ten electrical geysers.

After delivery of these items, the amount of Rs 90,000 will be given to A.P Manufacturers.

This agreement is made and entered into Jalandhar, on 5th Feb, 08 between Mr. Aadesh having office at Yamuna nagar and the property dealer Mr. Sumit Goyal having office at Jalandhar.

Whereas the property dealer Mr. Sumit Goyal agreed to purchased land to Mr. Aadesh on 5% commission.

This agreement is made and entered into Yamuna Nagar, on 15th Feb, 08 between Miss Shubleen having office at Yamuna nagar and the manager of R.K. Furniture’s having address at Gurgaon.

In this agreement, A.P Manufacturers ltd. is purchasing the following items for office from R.K. Furniture’s.

Five office tables.

Twenty chairs.

The 20% of amount will be paid before delivery and the rest of amount will be after delivery. The total cost of furniture is Rs. 50,000.

This agreement is made and entered into on 27th Feb, 08 between Mr. Ramchander having office at Yamuna nagar and the manager of Bill gates Company Mr. Krishan Advani having address at Mumbai.

In this agreement Mr. Krishan Advani agreed to sale of ‘plasma cutter 711c’ to A.P Manufacturers ltd. for Rs. 2, 50,000.

This agreement is made and entered into on 2nd Mar. 08 between Mr. Aadesh having office at Jalandhar and the manager of Modern Breweries ltd. Mr. Vijay pal Singh.

Whereas Mr. Vijay pal Singh agreed to purchase 40 geysers @ Rs. 8,000/per unit and 30 washing machines @ Rs. 15,000/per unit. The half amount will be paid before delivery and the rest of the amount will be paid after delivery.

This agreement is made and entered in to on 4th Mar. 08 between Miss. Shubleen Kaur having office at YAMUNANAGAR and the owner of OM ELECTRICAL APPLIANCES Mr. SUBHASH having shop at YAMUNANAGAR.

Whereas Mr. SUBHASH agreed to purchase five geysers for Rs. 41,000 from A.P MANUFACTURERS. The full payment will be received after delivery.

This agreement is made and entered into on 15th Mar. 08 between Mr. AADESH and the salesman of RAY TRADERS having office at JALANDHAR.

Whereas the salesman of EASTMAN HANDTOOLS TRADERS agreed to sale the hand tools. These hand tools are given as follows:

Two sided keys of 1-30 no.

Cutting tools (for boatyard and shipyard)etc.

The amount of tools Rs. 1,500 will be paid at the time of delivery.

This agreement is made and entered into on 28th Mar. 08 between Mr. RAMCHANDER

and the manager of RAY TRADERS Mr. RAMDASS having office at DELHI.

Whereas Mr. RAMDASS agreed to purchase 15 sheets of steel from A.P MANUFECTURERS for Rs. 50,000. The 75% of amount will be received in advance and rest of the amount after delivery.

This agreement is made and entered into on 25th May. 08 between Mr. AADESH having office at JALANDHAR and the agent of T.P TRADERS Mr. DILBEER SINGH having office at DELHI.

Whereas the agent Mr. DILBEER SINGH agreed to purchase 50 washing machines and 20 geysers for Rs. 1, 00,000 from A.P MANUFACTURERS. The 75% amount will be received before delivery and rest of the amount will be received after delivery.

This agreement is made and entered into on 30th May.08 between Miss. SHUBLEEN KAUR

Having office at YAMUNANAGAR and the manager of JINDAL STEELS Mr. ROHIT VERMA having office at JALANDHAR.

Whereas Mr. ROHIT VERMA agreed to sale of raw material to A.P MANUFACTURERS LTD. for Rs. 50,000.

OBJECTIVES

Main Objectives of Partnership and Integrated Working

Improving user experience of public services

Dealing with the ‘wicked issues’

Easy and timely access to services

Making best use of available resources

Promoting Citizen Involvement