question_answer

Explain meaning, features, merits and demerits of partnership firm.

Answer:

Ans.     Partnership is a voluntary association of two or more persons who agree to carry on some business jointly and share its profits and losses. The partnership was evolved to overcome the shortcomings of sole proprietorship and Joint Hindu Family business.

Features:

(i) Two or more persons: There must be at least two persons to form a partnership. The maximum number of persons is 10 in banking business and 20 in non-banking business.

(ii) Agreement: It is an outcome of an agreement among partners which may be oral or in writing.

(iii) Lawful business: It can be formed only for the purpose of carrying on some lawful business.

(iv) Decision making and control: Every partner has a right to participate in management and decision making of the organization.

(v) Unlimited liability: Partners have unlimited liability.

(vi) Mutual agency: Every partner is an implied agent of the other partners and of the firm. Every partner is liable for acts performed by other partners on behalf of the firm.

(vii) Lack of continuity: Firms' existence is affected by the death, lunacy and insolvency of any of its partner. It suffers from lack of continuity.

Merits:

(i) Ease of formation and closure: It can be easily formed. Only an agreement among the partners is required.

(ii) Larger financial resources: There are more funds as capital is contributed by number of partners.

(iii) Balanced decisions: As decisions are taken jointly by partners after consulting each other.

(iv) Sharing of risks: In it, risk gets distributed among partners which reduces anxiety, burden and stress on individual partner.

(v) Secrecy: Secrecy can be easily maintained about business affairs as they are not required to publish their accounts or to file any report to the government.

Limitations:

(i) Limited resources: There is a restriction on the number of partners and hence capital contributed by them is also limited.

(ii) Unlimited liability: The liability of partners is unlimited and they are liable individually as well as jointly. It may prove to be a big drawback for those partners who have greater personal wealth. They will have to repay the entire debt in case the other partners are unable to do so.

(iii) Lack of continuity: Partnership comes to an end with the death, retirement, insolvency or lunacy of any of its partners.

(iv) Lack of public confidence: Partnership firms are not required to publish their reports and accounts. Thus they lack public confidence.