Monday, 13 March 2017

Rajat Malhotra

PARTNERSHIP AND ADVANTAGES OF PARTNERSHIP OVER COMPANY



Lawji-partnership


PARTNERSHIP AND ADVANTAGES OF PARTNERSHIP OVER COMPANY
1) Definition Of Partnership:
Section 4 of the Indian Partnership Act ,1932 defines ‘Partnership’ as under[[1]]:

‘Partnership is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all ’.



Elements Of ‘Partnership’ are as follows: The definition of ‘partnership ‘contains 3 elements:

1. There must be an agreement entered into by all the persons concerned.
2. The agreement must be to share the profits of business.
3. The business must be carried on by all or any of the persons concerned, acting on behalf of each partner.


2) Nature Of Partnership
Partnership is a form of business organization, where two or more persons join together for carrying on some business jointly. It is an improvement over the ‘Sole –trade business ’, where one single individual with his own resources, skill and effort carries on his own business. Due to the limitation of resources of only a single person being involved in the sole-trade business, a larger business requiring more investments and resources than available to a sole-trader, cannot be thought of in such a form of business organisation. In partnership, on the other hand, a number of persons could pool their resources and efforts and could start a much larger business, than could be afforded by any of these partners individually . In case of loss the burden gets divided among various partners in a Partnership.

3) Criteria Of Partnership :
Any two or more than two persons can join together for creating Partnership. Section 11 of the Companies Act, 1956 imposes limit as to maximum number of persons in a partnership for the purpose of carrying :

· In Banking Business – There can be maximum of 10 partners.
·For any other purpose – There can be maximum of 20 partners.


If the number of partners in any association exceeds the above stated limit ,that must be registered as a company under Companies Act ,1956 otherwise that will be considered to be an illegal association.


As against partnership, where the maximum number of partners can be 10 or 20 , depending on the nature of partnership business, there could be possibly much larger number of members in a company.


· In Pvt. Company – Here there can be maximum of 50 members
· In Public Company - Here there is no such limit to the maximum number.


Therefore , if a much larger business than could be afforded by only 10 or 20 persons , is sought to be carried on , a company works out to be better form of business organization than partnership . For instance , there could be a public company having 1,00,000 members , each one of them having contributed just Rs.10 , and thus having a capital of Rs. 10,00,000 for its business. A Company , as a form of business organization may be better than a partnership in another way also. It is an artificial person, distinct from its members , and has much longer life than that of a partnership, whereas the partnership being nothing but an aggregate of all the partners, partnership has much smaller span of life than a company. In the case of a Company, the liability of a member (shareholder) is limited to the extent of the amount of shares purchased by him, whereas in case of Partnership, the liability of every partner in unlimited, and this factor is of great advantage in case of a Company , from the point of view of risk of investors in the business.

4) Advantage Of Partnership over A Company :


i) For the creation of partnership just an agreement between various persons is all what you require. In case of a company a lot of procedural formalities which have to be gone through before a company is created.


ii) The partners are their own masters for regulating their affair. A company is subject to a lot of statutory control.


iii) For dissolution of partnership , a mere agreement between the partner is enough But that is not the case of a company which can be wound up by only after certain set of procedure is followed.


iv) Since all the profits are to be pocketed by the partners in a partnership firm, there is a great incentive for the partners to make business successful But that is not in case of a company.


v) In a Partnership the persons who have entered into are individually called partners and collectively a firm. A partnership firm does not have a separate legal personality. A company is a legal entity different from its members.


vi) A partnership firm means all the partners put together , if all the partners cease to be partners , e.g., all of them die or become insolvent, the partnership firm gets dissolved. A company being a person different from the members ,the members may come and go but the company’s life is not affected thereby.


vii) The shareholder of a company can transfer his share to anybody he likes but a partner cannot substitute another person in his place unless all the other partners agree to the same. Similarly, on the death of a member of a company his legal representatives will step into his shoes for the purpose of the rights in the company, but on the death of a partner his legal representatives do not get substituted in his place of partnership.


viii) The minimum number of members in partnership in two and maximum in case of partnership carrying on banking business is 10 and in case of any other business is 20. In the case of a pvt. company the minimum number is 2 and the maximum is 50 whereas in the case of a public company the minimum number should be 7 but there is no limit to the maximum number and therefore, any number of persons can hold shares in a public company.


ix) The liability of the members of a company is limited but the liability of the partners is unlimited.

5)    Conclusion & Suggestion:
In my opinion Partnership is very important because in day to day activities we enter into partnership agreements and by making partners big goals are achieved with the help of joint and more number of people. The joint efforts of all the member results in successful accomplishment of tasks and that task or job can be easily afforded. Division of work leads to increase in efficiency at work among different partners.
When some job is done by consent of all the members and if some profit is earned then it is shared among the different partners. And similar is the case when some loss occurs then that is also beard among all the members and its not that only one has to take responsibility or give compensation. So in my view Partnership is a good form of doing business than a company which is owned by a single person.
Partnership is one of the oldest forms of business relationships. Though limited liability companies have replaced partnership firms in complex businesses, partnerships are still preferred by professionals and small trading and business enterprises in India and abroad.
The Indian partnership act of 1932 provides for a general form of partnership which is the most prevalent form in India, but, over time the general form of partnership has lost its charm because of the inherent disadvantages in it, the most important is the unlimited liability of all partners for business debts and legal consequences, regardless of their holding, as the firm is not a legal entity.
General partners are also jointly and severally liable for tortuous acts of co-partners. Each partner has the exposure of their personal assets being appropriated and liquidated to meet partnership dues. These are statutory position, which cannot be altered by contract, though at times subterfuges are resorted to by unscrupulous partners to avoid personal liability.
General partnership holdings are not easy to transfer; typically all other partners have to agree. Yet partnership is preferred in India, because of the ease of formation and lack of compliances involved.


_____________________________________________________________


[1]
The present definition replaces Section 239 , Indian Contract Act which defined ‘Partnership’ as under :

‘Partnership is the relation which subsists between persons who have agreed to combine their property, labour or skill in some business , and to share the profits thereof between them.