Partnership firm
Two or more people can form a partnership firm. There is no legal way to form a partnership. Even the registration of a partnership is optional.
Formation of partnership firm made by a contractual relationship between two or more people. This partnership is formed on mutual trust and good faith. The partners' agreement is to run a legal business and split the earnings.
The agreement should be in writing to avoid disagreements, while the law does not compel it to be in writing. In the absence of such an agreement, the Partnership Act of 1932 governs the rights and duties of partners.
It is a document that contains the terms and conditions of a partnership. It is a written agreement signed by all of the partners and legally stamped and registered.
It establishes the duties, rights, and obligations of partners and governs their interactions in the conduct of the firm's business operations. It is not a public record.
The partnership agreement should not include any terms that are in violation of the Partnership Act. A written agreement can help prevent and resolve problems between partners.
The partnership deed's terms and conditions can be amended with the agreement of all partners. Now, Let's discuss the essential elements needed for the formation of partnership firm.
A Partnership's Essential Elements
The development of a Partnership necessitates the presence of certain crucial elements. They are mentioned here, along with a brief description.
A Contract:
The formation of partnership firm is done by an agreement between two or more people. It should be highlighted that this type of arrangement may only originate from a contract, not from status. This is how a partnership differs from a Hindu Undivided Family conducting family business.
The reason for this is that this type of relationship can only be formed with mutual agreement. As a result, a partnership is both voluntary and contractual in nature.
A partnership relationship may be formed as a result of an express agreement.
It may also be suggested by the Partnership Act and a consistent course of conduct, demonstrating common understanding between the partners. This agreement may be oral or written.
Profit Sharing in Business
When it comes to business profit sharing, there are two options to consider. First and foremost, a business must exist. For this purpose, the term "business" refers to any trade, occupation, or profession. This is the most important point in the formation of partnership firm.
The presence of a business is critical. A business's motivation is the "acquisition of gains," which leads to the development of a partnership. As a result, there can be no partnership if there is no intention to run a firm and share the earnings.
Co-owners who share the rent from a piece of land, for example, are not considered partners because no business exists. Similarly, no philanthropic organisation or club may be referred to as a partnership. A Joint Stock Company, on the other hand, may be formed as a partnership for non-economic reasons.
Second, an agreement on profit distribution must be reached. For example, A and B buy specific cotton bales and agree to sell them on their joint account and split the profits equally. In this case, A and B are partners in the business that they have planned.
However, an agreement to share losses is not a necessary component that is considered. Unless otherwise agreed, any damages must be borne in a profit-sharing ratio.
Managing the Company
The third criterion for a partnership is that the firm be run by all of the partners or by one or more of them acting on their behalf. This is the foundational premise of partnership law.
An act of one partner in the course of the firm's operation is actually an act of all partners. A business partner is both the primary and the agent for all of the other partners.
As a result, it should be underlined that the true test of a partnership is mutual agency rather than profit sharing. There will be no cooperation if the element of interactive agency is missing.
The only Prima Facie proof that can be refuted by stronger evidence is benefit sharing. This, prima facie proof, can be refuted by demonstrating the absence of mutual agency.
Difference between Partnership and Firm
Individuals who have created a relationship with one another are referred to as Partners. The partners may be referred to collectively, and the name under which the company is conducted is referred to as the name of the Firm.
A partnership is nothing more than an abstract legal connection between two people. A firm is a physical item that represents the collective entity of all the partners. The formation of a partnership firm is thus an invisible bond that holds the partner together, and a company is the outward shape of this partnership that is so bound together.
If you are seeking to start your own partnership firm with proper registration and finding it difficult to do it yourself, feel free to contact lawgical India. We provide various legal services which can help you grow your business and take it to new heights.
