Definition of Partnership
Partnership or firm as it is often called is the 2nd stage in the evolution of forms of business organization. Partnership as a form of business organization grew out of the limitations of individual proprietorship. in sole proprietorship, the financial resources, managerial skill, risk bearing capacity were limited. When business activities started expanding, the arose a need for more capital, more persons to supervise the business affairs, The partnership form of organization was developed to overcome the draw backs of sole trading organization and to meet the expanding needs of a business requiting a moderate amount of capital. Here two or more persons (not exceeding 20) form partnership by making a written or oral agreement that they will jointly assume full responsibility for the conduct of business. L H. Haney defines partnership in the following words. Partnership is the relationship between persons who agree to carry on a business in common with a view to private gain.”
Elements of Partnership
The essential elements of partnership as a form of business organization are as follows:-
(i) Association of at least two persons
Atleast two persons must joint together to form a partnership.
(ii) Contractual relation
There must be an agreement between persons desirous of forming a partnership.
(iii) Earning of profit
The agreement must be to share profit/loss of a business.
(iv) Mutual agency
The business of partnership may be carried on by all the partners or by any of them acting for all. Thus every partner is an agent of other partners and at the same time of the firm.
Section of the Partnership Act of 1932 as adopted in Pakistan defines partnership in the following words “Partnership Is the relation between persons who have agreed to share the profits of a business carried on by all or any one of them acting for all. Persons forming partnership are individually known as partners and collectively ‘a firm’.