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Partnership Firm

By | August 2010
Page 1 of 8

Definition: “Partnership can be defined 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.”


When one is starting a business, one may form a sole proprietorship when the business is small. The problem with this kind of business is that it cannot grow beyond a certain limit. This is because a sole proprietorship will not be readily sponsored by banks and other sources of finance.

Also the amount of money that the sole proprietor can contribute to the business “alone” is not enough if the business needs expansion. Besides this, the sole proprietor has to take wise decisions in running the business. If he is unable to do so, the business will not be very successful and will not grow.

A sole proprietor might be an expert at marketing or might be technically strong. But it is not likely that he will be strong in all the fields that are important for making wise and successful business decisions.

For all the above reasons, one may choose to form a partnership firm right from the start or later change their firm to a partnership firm. So, one may start a partnership firm with the objective of pulling in people so that more capital is generated or making specifically skilled people partners so that wise business decisions may be made.

Before a partnership is formed, a “partnership deed” should be prepared. This partnership deed may be oral or in writing. However it is wise to make sure that the partnership deed is in writing so that future conflicts may be resolved.


1. Two or more members: At least two members are required to start a partnership business. But the number of members should not exceed 10 in case of “banking business” and 20 in case of “other business”. If the number of members exceeds this maximum limit, then that business is not called as a partnership business legally.

2. Partnership agreement: Whenever you...

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