Partnership(Chapter 4)
Transcript of Partnership(Chapter 4)
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Partnership
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Definitions Two or more individuals may form a
partnership by making a written or oral
agreement that they will jointly assume full
responsibility for the conduct of business.
-Dr. J.A Shubin
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.
-Indian Partnership Act,1932
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Characteristics of partnership
Statutory Characteristics
More than one person
Existence of businessContractual relationship
Profit motive and sharing of profits
Principal-agent relationship
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General characteristics
Unlimited liability
No separate individuality
Utmost good faith
Restriction on transfer of funds
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Types of
partnership
General &Limited
Partnershipat will &Particular
Legal &Illegal
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Merits of partnershipEasy formulation
More financial resources
Balanced decision
Benefit of specialization in
management
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Continued .More flexibility
More credit facility
Secrecy
Personal control
Self motivation
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Continued.Coordination in different activities
Benefits of unlimited liability
Division of work
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Demerits of partnershipLack of prompt decision
Lack of harmonony
Lack of continuity
Limited resources
Risk of implied authority
Lack of public faith
More wastage
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Distinguish between
Partnership & SoleProprietorship/Trade
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BASIS OF
DIFFERENCE
PARTNERSHIP SOLE TRADE
Number of members General business:Minimum-2 maximum-20
Banking Business:
Minimum-2 maximum-10
Owner is individual
Agreement Clear or implied agreement
is essential, in the form ofpartnership deed.
No need or question of
agreement
Act Indian Partnership Act,
1932 applies to business.
No Act applies to this
business.
Registration Not necessary in
Partnership
No question of registration
in sole trade.
Profit-Loss sharing Profit & loss is divided
among all the partners
according to the agreement.
Sole trade himself is
recipient of all profit-loss.
Management All or one on behalf of
others manages the firm.
The entire burden is on the
shoulders oof sole trader.
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Basis of Difference Partnership Sole Trade
Capital All Partners invest in the
firm which leads to
increase in the financialresources.
Amount of capital is
limited because of single
owner.
Succession Successor of dead partner
join partnership is not
necessary. He can be
partner only on approval of
other partners.
On death of sole trader his
legal successor
automatically becomes the
owner of the business.
Secrecy Little Secrecy Absolute secrecy
Scope of business wide Limited
Difficulty in formation Simple formalities are there No formalities
Quickness in decisions Decisions can be delayed Decisions can be takenquickly
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