Topics: Partnership, Corporation, Types of business entity Pages: 16 (3848 words) Published: May 14, 2013
Chapter # 03
Q-1Define Partnership and explain the features of Partnership? Ans. A partnership is the relationship existing between two or more persons who join to carry on a trade or business. Each person contributes money, property, labor or skill, and expects to share in the profits and losses of the business. A partnership must file an annual information return to report the income, deductions, gains, losses, etc., from its operations, but it does not pay income tax. Instead, it "passes through" any profits or losses to its partners. Each partner includes his or her share of the partnership's income or loss on his or her tax return. Partners are not employees and should not be issued a Form W-2. The partnership must furnish copies of Schedule K-1 (Form 1065) to the partners by the date Form 1065 is required to be filed, including extensions. If you are a partnership or a partner (individual) in a partnership, use the information in the charts below to help you determine some of the forms that you may be required to file. a)The main features of partnership are given below:


There must be agreement between the parties concerned. This is the most important characteristics of partnership. Without agreement partnership cannot be formed. "No agreement no partnership." But only competent persons are entitled to make a contract.

There are some provisions contained in the partnership agreement. These are determined clearly before the commencement of business. But it differs from business to business. This documents may be written or oral. But it must be written so that disputes may be settled according to the provisions of agreement.

2.Number of Partnership

There should be more than one person to form a partnership. But there is restriction for the maximum number of partners. In case of ordinary business, the partners must not exceed 20 and in case of banking must not exceed 10 (before nationalization).


The object of the formation of partnership is to carryon any type of business. It may be manufacturing or merchandise type small or large scale business. But it should not be illegal business in the country concerned.

4.Profit motive

The basic motive of the formation of partnership is to earn profit. This profit is distributed among the partners according to agreed proportion. If there is loss it will be sustained by all partners except the minor.

5.Conduct of Business

The business of partnership is conducated by all the partners or any or them acting for all. But each partner is allowed to participate in the management by law.


It has no separate entity apart from its members. It is not independent of the partners. Law has not granted it any legal entity.

7.Unlimited liability

This is the prominent feature of partnership that the liability of each partner is not limited to the amount invested but his private property is also liable to pay the business obligations.


Each partner contributes his share in the capital according to the agreement. Some persons become partners without investing any capital to the business. But they devote their time, energy and ability to their business instead of capital and receive profit.

9.Transferability of share

There is restriction to transfer the share from one partner to another person without the consent of existing partners. So the investment in the partnership remains confined into few hands.


One partner is an agent as well as principal to other partner. He can bind the other person by his act. In the position of an agent he can make contract with another person or parties on behalf of his concerned firm.

11.Mutual Confidence

The business of the partnership cannot be conducted successfully without the element of mutual confidence and cooperation of partners. So the members must...
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