A partnership in business can be defined as the mutual participation of two or more partners to conduct business. In partnership, everything such as investment, ownership, responsibilities, profit, and losses are shared by the partners of the business.
People start a business in partnership to minimize the impacts of loss incurred by the business. In addition to this, in partnership, people can take the advice of one another to make decisions important decisions and can make large investments.
However, it is important to understand the concept of partnership completely before you get yourself involved in any partnership. to establish an understanding of the partnership business, it is important to learn about the different features of a partnership.
Let us learn about the different features of a partnership.
Top 10 Features of a Partnership
#1 Mutual Trust
The first and the most important feature of a partnership is the trust of partners in one another. When you get into a partnership, you put your money at stack. Only people who trust one another can stay long in the business and take their business to new heights.
Otherwise, you must have heard about the partners separating as they could not maintain the trust in the partnership.
#2 Legal agreement
A partnership is considered valid when all the parties involved in the partnership legally agrees to involve in the partnership. To make it legal and more formal all the conditions should be mentioned in written form and to make to more formal and valid, it should be duly signed by each partner in the presence of an attorney.
By signing on the agreement all the parties involved in the partnership not only get the ownership in the business and a share in the profit made by the business, but they will also be equally obliged to take the responsibility and should provide both mental and financial help in order to solve the problems faced by the business.
Partners start a business by investing their share of money with the expectation of making additional money. Therefore, the profit shared by the business is also shared by the partners per their investment in the business.
For example, three partners named A, B, and C have started a business by investing a total of $1,00,000 out of which $50,000 are paid by A and $25,000 and $25,000 paid by B and C each. Their percentage share in the business will be 50%, 25%, and 25% respectively.
The partners not only share the profit made by the business but also take the responsibility of loss incurred by the business. Business partners can also put in their assets to keep the business running.
A financial sound partner can also pay the share of a financial weaker partner based on their mutual understanding whenever the need arises.
#4 The number of partners
Minimum two partners are required to get involved to start a business. However, there is no bound on the relationship shared by the business partners with one another.
Business partners can be two strangers and can be belonging to the same family. For example, if two brothers decide to start a business together, then they should get a legal agreement to avoid problems in the future.
However, there is a limit on the partners which can get involved in the business partnership. For example, there can be a maximum of 10 business partners in the business in the banking sector, and there can be up to 20 business partners in a non-banking business.
#5 A lawful business
Partnership businesses are lawful businesses, and these are required to be registered lawfully. There is a law for partnership businesses in every country, and legal business is required to fulfill all the conditions set by the law of the country in which the business will operate.
However, if two or more people come together and put money in some charitable work, then it will not be regarded as a partnership business.
Even though a partner has the ownership of the business, but he or she cannot give away or sell his share in the company to a person other than to already existing partners.
It is important to get the consent of all the partners involved in the business before taking any such decision. A decision made by the majority of partners can be considered valid.
#7 Decision Making
The partners involved in the partnership business have the authority to give their opinion to make an important decision about the business. A partner can take legal action if other members take a major decision about the business in the absence of a partner.
Because of this reason, a meeting of all the partners involved in the business is called when an important decision is required to make about the business.
#8 Flexibility to conduct business
Even though each partner of business has equal rights to conduct business, but with mutual understanding, they can pass the decision-making responsibility to the partner with more experience and better decision-making skills in the business.
In addition to this, the responsibility to manage a business can also be put on the shoulders of a business partner who is willing to take responsibility and has enough time and skills too.
But one thing is important an individual can not take all these decisions. It is important for all the partners to agree with any such decision.
Another important feature, like trust, which cannot be enforced by the law is honesty. It is important for all the partners of the business to remain completely honest with one another.
The life span of a business becomes long if the partners of the business are completely honest with one another and share the profits, losses, responsibilities with complete honesty.
Another important feature of the business is taxation. All the partners involved in the business are required to pay taxes on an individual basis as they all deemed as self-employed by the law.
However, there is no separate tax imposed on the income made by the business itself.