Partnership by Sohail Ahmad

 Partnership:

Definition:

             “The relation between two people who agree to share profit or loss of a business carried out by all partner or any of them acting for or on behalf of all partners”.

As the partnership mean agreement between two person to run a business, so all the partner shall liable to any transaction or other thing which is related to business. The partner are also liable for debts and loan taken by the firm for business purpose and any other liabilities.

Essential element of partnership:

There are five essential element of partnership describe as follow:

1. Must be a contract:

                          Partnership may result from contract. Partnership does not arise from status or from Inheritance. If a father die his son can claim share of his father but he does not become a partner in place of his father. If he want to become a partner, he will enter into new contract with the remaining partner.

2. Association of two or more person:

                               A partnership come into the existance in result of a contract, so it must have minimun two person to enter into a partnership.However the partnership act does not mention about the maximum number of partners.

Only competent and sane person can enter into the contract of partnership, person may be natural person or artificial person.

Natural person mean human male female or other genders. While artificial person mean a company, association or any institution etc. which is registered and have a legal status.

3. Agreed on carrying out a business: 

                     The third element of partnership is that the partner must agreed upon carrying a business.

The term business is used in broadest means, it may include all the trade occupation and profession.

If two person is agreed upon carrying charitable work it will not be a partnership. Their must be continuity and repetition of an act in order to be a partnership.

Only one transaction is not considered as partnership.

4. Sharing of profit and losses:

                   The Forth and foremost element of partnership is the sharing of profit. The main aim of partnership is to carry out a business and make a profit from it.

On entering into a partnership their must be an agreement between partners about the sharing of profit.

Profit attain in result of partnership in business can be divide among the partner 

according to their share or according to the status of partner. As partner have many 

status, It may be active partner who share capital and also take active part in the 

conduct or carrying out of a business. Or sleepy partner, who only contribute to the 

capital of partnership and not take part in the conduct or carrying out of business. So 

each of the partner will receive has profit according to has share or according to has 

status.

On the other side in case of losses, The losses will also be divide among the partners according to has share.

5. Mutual agency:

 

                        The fifth and the last element of partnership is the mutual agency.

Mutual agency mean that the business must be carried out by all partner or by any one 

on behalf of all other partner.

Thus, This show that every partner is both an agent and principal for himself and for all other partner. To check whether the person is partner or not check the status of 

agency. If the status of agency exist the he will be a partner otherwise he will not 

consider is partner if the status of agency is not exist. 

The importance of mutual agency is that it enables every partner to run a business on 

behalf of other