When two or more individuals come together to start a business and agree to share its profits and losses, they form a partnership. According to Section 4 of the Indian Partnership Act, 1932, a partnership is “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.”

Individuals in such an arrangement are called partners, and collectively, they are referred to as a firm. The business name under which the firm operates is known as the name of the firm. Importantly, a partnership firm does not have a distinct legal identity separate from its partners.

Key Features of Partnership

1. Two or More Persons:

   • A partnership can only be formed when at least two individuals with a shared goal come together. The minimum number of partners required to establish a partnership is two. However, there are legal constraints on the maximum number of partners.
   • Under Section 464 of the Companies Act, 2013, the Central Government can set the maximum number of partners, but it cannot exceed 100.
   • According to Rule 10 of the Companies (Miscellaneous) Rules, 2014, the maximum number of partners allowed in a partnership firm is 50.

2. Agreement:

   • A partnership is formed through an agreement between two or more individuals to conduct business and share its profits and losses. This agreement is the foundation of the relationship between partners.
   • While a written agreement is preferred to avoid misunderstandings, an oral agreement is equally valid under the law. However, having a written agreement is highly recommended for clarity and legal protection.

3. Sharing of Profit and Loss:

   • One of the defining features of a partnership is the mutual agreement to share the profits and losses of the business. According to the Indian Partnership Act, the focus is on sharing profits, but the sharing of losses is also implied.
   • Therefore, the sharing of both profits and losses is crucial to the structure of a partnership.

Conclusion:

The Nature of Partnership involves an association between two or more individuals who come together to pursue a business venture. It is governed by a mutual agreement and involves sharing the profits and losses of the business. While partnerships offer many advantages, they require trust, mutual understanding, and clear agreements among partners to function effectively.

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