Important Fundamentals of Partnership Business
When two or more persons agreed to form a business and run by them with a view to earning a profit is called partnership business. There are some fundamentals or essential elements to be needed to form a partnership business. If any clement remains beyond this criteria then partnership business will lose its existence. As per the rules and regulations directed by Partnership Act-1932 the following essential elements need to be mentioned:
In the following the above essential elements are discussed briefly:
Legal business: The first essential element of a partnership business is that the parties must have agreed to carry on a business. For instance, if the purpose is to carry on some heritable work, it will not be a partnership business. So to become a partnership business the legality of objectives is necessary.
Sharing of profits: The agreement to carry on business must be with the objective of sharing profits among all the partners proportionately. Impliedly the partnership must aim to make profits because only profits may be divided among the partners in according to their share.
Mutual agency: The conducting of all activities in a partnership business as like the mutual agency. The business must be carried on by all the partners or any (one or more) of them acting for all, that is treated as a mutual agency.
A plurality of members: Two or more persons are needed to form a partnership business. As per the existing law of our country, the members are limited to 2-20 and in case of bathing business, it is 2-10.
Mutual confidence and trust: It is needed to have mutual confidence and trust among the partners. For this reason, the relation held between partners is called “utmost good faith”.
Contractual relation: Partnership is the result of a contract. It does not arise from the status operation of law or birthright. This contract may be oral or written.
Administration and management: All the partners or acting partner may Administer and manage in a partnership business. Because they are responsible for making a decision and proper execution of that decision in a partnership business.
From the above discussion, we can say that a partnership business must have some essential elements on which the business is conducted. This is not true, all the elements must have in the all categories of partnership business at a time, but the elements needed for conducting the specific business must be there.