After reading this article you will learn about:- 1. Meaning and Definition of Partnership 2. Need of Partnership 3. Characteristics or Features or Elements.

Meaning and Definition of Partnership:

Partnership is an association of two or more persons who agree to carry on a lawful business in common with the object of sharing in partnership. The partners provide the capital and share the responsibility for running the business on an agreed basis.

Definition of Partnership:

Some of the important definitions of partnership are given below:


1. According to Kimball and Kimball, “A partnership or firm as it is often called, is then a group of men who have joined capital or services for the prosecution of some enterprise.”

2. According to L. H. Haney, “Partnership is an agreement between persons having contractual capacity to carry on a business in common with a view to private gain.”

3. According to Dr. John A. Shubin, “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 a business.”

4. According to Charles W. Gesternberg, “The partnership may be defined as the relation existing between persons who agree to carry on a business as co- owners for profit.


5. According to Dr. William R. Spriegal, “Partnership has two or more members, each of whom is responsible for the obligation of the partnership. Each of the partners may bind the others, and the assets of each of the partners may be taken for the debts of the partnership.”

Legal Definitions:

1. According to U.S.A. Partnership Act, “A partnership is an association of two or more persons to carry on, as co-owners, a business for profit.”

2. According to English Partnership Act, 1890, “The relation which subsists between persons carrying on a business in common with a view to profit.”


3. According to Section 4 of Indian Partnership Act, 1932, “Partnership is the relation between persons who have agreed to share the profits of a business carried on by all or any one of them acting for all.”

The persons who form a partnership are individually called ‘partners’ and collectively ‘firm’. The name under which the business is conducted is called the ‘firm name’.

Need of Partnership:

The need of partnership arose from the limitations of sole proprietorship. In other words, partnership came into existence because of the limitations of sole proprietorship. In sole proprietorship, financial resources and managerial skills were limited. One person could provide only the limited amount of capital and could not start the business on large scale.

A sole proprietor could not provide even required managerial skill. Single owner could not manage all activities efficiently and effectively. Risk-bearing capacity of sole proprietor was also limited.


When business activities started expanding, the need for more fund arose. When the size of business extends, the sole proprietor finds it difficult to manage the business and is forced to take the help of outsiders who will not only provide additional capital but also help him in managing the business activities efficiently and effectively.

So, more persons were associated to form groups to carry on business and consequently partnership form of organisation came into existence. It is the ideal form of organisation for the enterprise requiring moderate amount of capital and diversified managerial talent.

In nutshell, it can be said that partnership form of organisation came into existence because of the limitations of sole proprietorship.

Characteristics or Features or Elements of Partnership:

The essential characteristics of partnership are:


1. Contractual Relationship:

The partnership results only from a contract between a certain number of persons called partners. According to Partnership Act, “The relation of partnership arises from contract and not from status.” An oral contract is sufficient but it is always better to draft a deed of partnership specifying the terms and conditions and the rights, duties and obligations of partnership. Minors, insolvents, lunatics, and other persons incompetent to enter into a valid contract cannot enter into a partnership agreement.

2. Two or More Persons:

In partnership there must be at least two persons. According to Partnership Act there is no maximum limit of partners in the partnership, but according to Companies Act, 1956 the maximum number of partners is 10 in case of banking business and 20 in case of other business operations.


3. Existence of Business:

The objective of the association of persons must be to do some kind of business. Where there is no business there is no partnership. By business, we mean all activities concerning production and distribution of goods and services for the purpose of earning profits.

4. Earning and Sharing of Profit:

The agreement to carry on business must be with the objective of making profit and sharing it among all partners. If the partnership is formed to do some charitable work, it will not be called a partnership.


5. Extent of Liability:

The liability of each partner for the firm is unlimited. The creditors have the right to recover the firm’s debts from the private property of any or all partners, where the assets are not adequate.

6. Mutual Agency:

The business may be carried on by all partners or one or more acting on behalf of other partners. In result, such a partner is both an agent and a principal, agent for other partners and principal for himself.

7. Implied Authority:

Each partner is an agent able to bind the other for the acts done by him on behalf of others, such as purchases and sales, the borrowing of money, the hiring of employees, etc. Such an act is said to be and treated as act of the firm and the authority so exercised by any of the partners is known as implied authority of the partners.


8. Restriction on the Transfer of Share:

No partner can sell or transfer his share to anybody else so as to make him partner in the business. This can, however, be done with the consent of all the partners.

9. Utmost Good Faith:

All the partners must have utmost good faith in each other. Every partner should act honestly and in the best interest of the firm. They should prepare true accounts and must disclose every information to one another. Distrust and suspicion among partners lead to the failure of many partnership firms.

10. No Separate Entity:

Partnership is an association of persons who are individually called ‘partners’ and collectively a ‘firm’, legally a partnership firm is not a legal entity nor a person with any separate right distinct from the partners constituting it. It is only an association of persons. Further, a firm is only a convenient phrase to describe the partners and has no legal existence apart from them.


11. Dissolution:

The partnership may be dissolved on the death, lunacy or insolvency of any one of the partners.