A partnership firm is an organization which is formed with two or more persons to run a business with a view to earn profit. Each member of such a group is known as partner and collectively known as partnership firm. These firms are governed by the Indian Partnership Act, 1932.
1. Number of Partners : Minimum number of person required to start a partnership firm is two and maximum limit is 10 in case of banking business and 20 in case of all other types of business.
2. Contractual relationship : A written agreement known as partnership deed which is signed by all the partners, binds them in a contractual relationship.
3. Voluntary Registration : Registration of partnership firm is not compulsory. Since the registration provides various benefits to the firm thus it is desirable.
4. Competence of Partners : Every partner must be competent enough to enter into the partnership agreement. He should not be minor (in some cases minor can be admitted only to the benefits of the partnership), lunatic or insolvent.
5. Sharing of Profit and Loss : In partnership firm all the profits and losses are shared by the partners in any ratio as agreed. If it is not given then they share it equally.
6. Unlimited Liability : Liability of partners of a partnership firm is unlimited. They are jointly held liable for the debts and losses of the firm.
7. Legal Status : Partnership firm has no distinct legal status separate from its partners.
8. Transfer of Interest : No partner can transfer its interest in the firm to anybody without the consent of other partners.
9. Principal - Agent Relationship: This relationship is based on mutual trust and faith among the partners in the interest of the firm. Business of the firm may be carried on by all the partners or any one of them acting for all. According to this, every partner is an agent when he is working on behalf of other partners and he is the principal when other partners act on his behalf.