Sharing of Profit - The main objective of every partnership firm is sharing of profits
of the business amongst the partners in the agreed proportion. In the absence of any
agreement for the profit sharing, it should be shared equally among the partners.
Suppose, there are two partners in the business and they earn a profit of Rs. 20,000.
They may share the profits equally i.e., Rs. 10,000 each or in any other agreed
proportion, say one forth and three fourth i.e. Rs 5,000/- and Rs. 15000/-.
Unlimited Liability - Just like the sole proprietor the liability of partners is also
unlimited. That means, if the assets of the firm are insufficient to meet the liabilities, the
personal properties of the partners, if any, can also be utilised to meet the business
liabilities. Suppose, the firm has to make payment of Rs. 25,000/- to the suppliers of
goods. The partners are able to arrange only Rs. 19,000/- from the business. The
balance amount of Rs. 6,000/- will have to be arranged from the personal properties
of the partners.
vii. Voluntary Registration - It is not compulsory that you register your partnership
firm. However, if you don’t get your firm registered, you will be deprived of certain
benefits, therefore it is desirable. The effects of non-registration are:
Your firm cannot take any action in a court of law against any other parties for
settlement of claims.
In case there is any dispute among partners, it is not possible to settle the
disputes through a court of law.
Your firm cannot claim adjustments for amount payable to or receivable from any
viii. No Separate Legal Existence - Just like sole proprietorship, partnership firm also
has no separate legal existence from that of it owners. Partnership firm is just a name
for the business as a whole. The firm means the partners and the partners collectively
mean the firm.
Principal Agent Relationship - All the partners of the firm are the joint owners of
the business. They all have an equal right to actively participate in its management.
Every partner has a right to act on behalf of the firm. When a partner deals with other
parties in business transactions, he/she acts as an agent of the others and at the same
time the others become the principal. So there always exists a principal agent relationship in every partnership firm.
Restriction on Transfer of Interest - No partner can sell or transfer his interest to
any one without the constent of other partners. For example - A, B, and C are three
partners. A wants to sell his share to D as his health does not permit him to work any
more. He can not do so until B and C both agree.
Continuity of Business - A partnership firm comes to an end in the event of
death, lunacy or bankruptcy of any partner. Even otherwise, it can discontinue its
business at the will of the partners. At any time, they may take a decision to end their