Characteristics of Partnership

Characteristics of Partnership

In this article we would explain some important characteristic of the Partnership. A business which is run & managed by two or more persons is known as partnership.

Important Characteristics of Partnership

Some important Characteristics of Partnership are unlimited personal liability, sharing of profits among partners, difficulty in arranging finance, fairly large scale operation etc.  Characteristics of partnership have been briefly explained below

1.   Profit Sharing

First important characteristic of Partnership is sharing of profit among the partners in agreed ratio. Normally profit is shared among the partners in proportionate to their investment, however, partners may be agreed to share the profit in any ratio irrespective of their invested amount.

2.   Personally unlimited Liability

Second characteristic of Partnership is personal unlimited liability of the partners of the firm. It means that, in case liquidation, if assets of business are not sufficient to pay the liabilities of the business, then such liabilities shall be paid by the partner from their pockets.

3.   Finance Arrangement Difficulty

Third important characteristic of Partnership is its difficulty in arranging the finances for the business due to limited creditability & acceptability in the financial markets as compared to the corporate business (companies). While the companies find it much easier to arrange the finances.

4.   Small Scale Operations:

Another important characteristic of Partnership is its limited or small scale operations. Partnership has more resources than sole proprietorship, but still these resources are not sufficient to finance large scale or mega projects.

5.   No perpetual Succession:

Other key characteristic of Partnership businesses is its limited life. It ceases to exist, if a partner dies or becomes insolvent. On other hand company continue to exist, even a share holder dies.  This is a major limitation of partnership business.

6.   Easy to Set up:

Partnership has limited formalities for set up as compared to corporate business (companies). Though partnerships are relatively easier to set up than a company, still require a lot of formalities.

7.   Restricted Transfer of Ownership:

Restricted transfer of ownership is an important characteristic of partnership. Ownership of partnership cannot be transferred to another person without consent of other partners. In case of company such permission is not required for transfer of ownership.

8.   Partners are Agent:

Another characteristic of partnership is its agency nature. It means all partner work as agents for partnership and acts of every partner is binding on all other partners, however, some partners’ rights are restricted under partnership deed, and those partners cannot enter into a binding arrangement/contract.

9.   Agreement:

Partnership is created by an agreement among the partners. Technically this agreement of partnership is known as partnership deed. This deed set out the roles & responsibilities of partners toward partnership. This deed is an important document of partnership.

List of important Characteristics of Partnership

Some important characteristics of partnership are listed below;

1.    Partners’ liability is unlimited.

2.    Profits are shared among partners in agreed ratios.

3.    Partnership is easy to set up than company.

4.    Partners act as agent on behalf of other partners.

5.    Partner cannot transfer the ownership without consent of other partners.

6.    Partnership dissolves on death of a partner.