What is a Partnership Firm?
A partnership firm is when two or more people team up to run a business together. In this setup, each person shares in the business’s profits, losses, and responsibilities. They usually lay out the terms of their partnership in a legal document called a Partnership Deed. Unlike bigger companies, a partnership firm has no separate legal status. This means that the partners are personally responsible for any debts or obligations the business incurs. People often choose partnerships because they’re simpler and more flexible than other business structures. But partners need to communicate well and agree on things to make sure the partnership runs smoothly and lasts.
Features of Partnership Firm:
- Shared Ownership: Partnerships involve two or more individuals who jointly own and operate the business. They contribute resources and skills, sharing both profits and losses according to their agreement.
- Mutual Agency: Each partner acts as an agent for the business and other partners. They have the authority to make decisions and enter into agreements on behalf of the partnership, within its scope of operations.
- Unlimited Liability: Partners have unlimited liability, meaning they are personally responsible for the firm’s debts and obligations. Creditors can seek repayment from the personal assets of the partners if the partnership cannot meet its financial commitments.
Difference between Partnership Firm and Company
In business, there are two main ways to organize: partnership firms and companies. Each has its own characteristics and pros and cons. Partnership firms involve multiple people running a business together, sharing profits and responsibilities. Companies, meanwhile, are separate legal entities owned by shareholders, with the company’s debts separate from their personal ones. Knowing these differences helps one decide how to set up their business.