The meaning and definition of partnership firms
Partnership is a form of business organisation which was born due to the defects of the sole trading firm. The two great drawbacks of sole proprietorship namely, limited capital and limited managerial skill have been overcome by the formation of a partnership firm.
Partnership is a combination of two or more persons, some having capital, others having skill and experience to conduct any lawful business, forming a business firm and sharing the profits of such a business. Hence the persons who form the partnership are called ‘partners’ individually and a ‘Firm’ collectively. The name in which their business carries on is called the ‘firm’s name’.
The Partnership is the result of:
- Need for more capital in the business.
- Need for more managerial ability.
- Need for diffusion of risks.
- Need for greater amount of specialisation.
Definition:
Section 4 of the Indian Partnership Act of 1932 defines a Partnership as “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”.
