A Partnership is one of the most important forms of a business organization. A partnership firm is where two or more persons come together to form a business and divide the profits in an agreed ratio. The partnership business includes any kind of trade, occupation and profession. A partnership firm is easy to form with fewer compliances as compared to companies.
The Indian Partnership Act, 1932 governs and regulates partnership firms in India. The persons who come together to form the partnership firm are knowns as partners. The partnership firm is constituted under a contract between the partners. The contract between the partners is known as a partnership deed which regulates the relationship among the partners and also between the partners and the partnership firm.
Partnership Firm Details
Advantages of Partnership Firm
- Easy to Incorporate - The partnership firm can be incorporated by drafting the partnership deed and entering into the partnership agreement.
- Less Compliances - The partnership firm has to adhere to very few compliances as compared to a company or LLP.
- Quick Decision - The decision-making process in a partnership firm is quick as there is no difference between ownership and management.
- Sharing of Profits and Losses - The partners share the profits and losses of the firm equally. They even have the liberty of deciding the profit and loss ratio in the partnership firm.
Disadvanatges of Partnership Firm
- Unlimited Liability - The partners have to bear the loss of the firm out of their personal estate.
- No Perpetual Succession - A partnership firm will come to an end upon the death of a partner or insolvency of all the partners except one.
- Limited Resouces - The maximum number of partners in a partnership firm is 20. There is a restriction on the number of partners, and hence the capital invested in the firm is also restricted.
- Difficult to Raise Funds - Since the partnership firm does not have perpetual succession and a separate legal entity, it is difficult to raise capital. The firm does not have many options for raising capital and growing its business as compared to a company or LLP.