Long answer type question. Explain the features of partnership firm.

ANSWER:

The following points highlight the features of a partnership firm:

i. Easy formation: It requires an agreement (oral or written) among its members to share profits and losses. It requires a minimum of two members to start up a business. Also, the registration of a partnership firm is also not compulsory.

ii. Unlimited liability: All partners in a partnership firm have unlimited liability. In other words, if the business assets are insufficient to meet business debts, then the personal property of the partners can be utilised for the purpose.

iii. Risk bearing: The risk associated with the fluctuations in the firm’s profits is borne jointly by the partners. This reduces the burden on each partner. Therefore, in a partnership firm, all partners share the risk of losses according to their profit-sharing ratio.

iv. Decision making and control: In a partnership firm, the decision-making power and control are shared by all partners. In other words, all the decisions are taken by the partners jointly.

v. Continuity: The death, lunacy, insolvency or insanity of any of the partners brings an end to the partnership. However, the existing partners may decide to continue the business with a new partnership agreement.

vi. Membership: A partnership firm requires a minimum of 2 adult members who agree to share profits and losses. The maximum number of members in a banking business is 10 and that in any other business is 20.

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