Definition of partnership.
partnership or firm as it is often called is the 2nd stage in the
evolution of forms of business organization. partnership as a form of business organization grew out of the limitations of individual proprietorship.
in sole proprietorship, the financial resources, managerial skill, risk
bearing capacity were limited. when business activities started expanding,
there arose a need for more capital, more persons to supervise the business
affairs. The partnership form of organization was developed to overcome the
draw backs of sole trading organization and to meet the expanding needs of
a business requiring a moderate amount of capital. here two or more persons
(not exeeding 20) form partnership by making a written or oral agreement
that they will jointly assume full responsibility for the conduct of business
L.H. Haney defines partnership in the following words.
Partnership is the relationship between persons who agree to carry on a
business in common with a view to private gain."
Elements of partnership.
The essential elements of partnership as a form of business
organization are as follow
(i) Association of at least two persons. Atleast two persons must joint
together to form a partnership.
(ii) Contractual relation. There must be an agreement between persons
desirous of forming a partnership.
(iii) Earning of profit. The agreement must be to share profit/loss of
a business.
(iv) Mutual agency. The business of partnership may be carried on by all
the partners or by any of them acting for all. thus every partner is an
agent of other partners and at the same time of the firm.
Section 4 the partnership Act of 1932 as adopted in pakistan defines partnership in the following words "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. persons forming partnership are individually known as partners and collectively 'a firm' .
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