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Following are the essential elements of a partnership firm except:
- a)Atleast two persons
- b)There is an agreement between all partners
- c)Equal share of profits and losses
- d)Partnership agreement is for some business
Correct answer is option 'C'. Can you explain this answer?
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Following are the essential elements of a partnership firm except:a)At...
1. CONTRACT FOR PARTNERSHIP
Partnership is the result of a contract. It does not arise from status, operation of law or inheritance. Thus, at the time of death of the father, who was a partner in the partnership firm, the son can claim share in the partnership property but cannot become a partner unless he enters into a contract for the same with other persons concerned.
2. MAXIMUM NO. OF PARTNERS IN A PARTNERSHIP IS 20
Since partnership is the result of a contract, at least two people are necessary to constitute a partnership. The Indian Partnership Act, 1932 does not mention anything about the maximum no. of partners in a partnership firm but as per the Companies Act, a partnership consisting of more than 10 persons for a banking business and more than 20 persons for any other business would be considered as illegal. Hence, these should be regarded as the maximum limits to the number of partners in a partnership firm.
3. CARRYING ON OF BUSINESS IN A PARTNERSHIP
The third essential element of a partnership is that the parties must have agreed to carry on a business. The term “business” is used in its widest sense and includes every trade, occupation or profession. Therefore, if the purpose us to carry on some charitable work, it will not be a partnership.
Similarly, if a number of persons agree to share the income of a certain property or to divide the goods purchased in bulk amongst them, there is no partnership and such persons cannot be called partners because in neither case they are carrying on a business.
4. SHARING OF PROFITS
This essential element provides that the agreement to carry on business must be with the object of sharing profits amongst all the partners. Thus, there would be no partnership where the business is carried on with a philanthropic motive and not for making a profit or where only one of the persons is entitled to the whole of the profits of the business. The partners may however, agree to share the profits in any ratio they like.
5. MUTUAL AGENCY IN A PARTNERSHIP
The fifth element in the definition of partnership provides that the business must be carried on by all the partners or any (one or more) of them acting for them all, i.e. there must be a mutual agency.
Thus, every partner, is both an agent and principal for himself and other partners, i.e. he can bind by his acts the other persons and can be bound by the acts of other partners. The importance of the element of mutual agency lies in the fact that it enables every partner to carry on the business on behalf of others.
Most Upvoted Answer
Following are the essential elements of a partnership firm except:a)At...
Essential Elements of Partnership Firm
1. At least Two Persons:
A partnership firm must have a minimum of two persons to carry out its business operations. The maximum number of partners in a firm varies depending on the type of partnership.
2. Agreement between all Partners:
The partnership firm must have a valid written agreement, also known as partnership deed, which defines the terms and conditions of the partnership including profit sharing, responsibilities, and decision making.
3. Partnership Agreement for some Business:
Partnership agreement should be for carrying out some business activity. The partners can choose any business activity, except those that are illegal or immoral.
4. Sharing of Profits and Losses:
All partners must agree to share the profits and losses of the firm in a predetermined ratio as mentioned in the partnership deed.
5. Mutual Agency:
The partnership firm is based on the concept of mutual agency, which means that each partner has the authority to act on behalf of the firm and bind the firm with their actions.
6. Joint Liability:
The partners have joint and several liability for the debts and obligations of the firm, which means that each partner is liable for the entire debt of the firm.
Exception to Essential Elements
The correct answer to the question is option C, which states that equal sharing of profits and losses is not an essential element of a partnership firm. The partners can agree to share the profits and losses in any ratio as mentioned in the partnership deed. However, the sharing ratio must be agreed upon by all the partners and must be mentioned in the partnership deed.
1. At least Two Persons:
A partnership firm must have a minimum of two persons to carry out its business operations. The maximum number of partners in a firm varies depending on the type of partnership.
2. Agreement between all Partners:
The partnership firm must have a valid written agreement, also known as partnership deed, which defines the terms and conditions of the partnership including profit sharing, responsibilities, and decision making.
3. Partnership Agreement for some Business:
Partnership agreement should be for carrying out some business activity. The partners can choose any business activity, except those that are illegal or immoral.
4. Sharing of Profits and Losses:
All partners must agree to share the profits and losses of the firm in a predetermined ratio as mentioned in the partnership deed.
5. Mutual Agency:
The partnership firm is based on the concept of mutual agency, which means that each partner has the authority to act on behalf of the firm and bind the firm with their actions.
6. Joint Liability:
The partners have joint and several liability for the debts and obligations of the firm, which means that each partner is liable for the entire debt of the firm.
Exception to Essential Elements
The correct answer to the question is option C, which states that equal sharing of profits and losses is not an essential element of a partnership firm. The partners can agree to share the profits and losses in any ratio as mentioned in the partnership deed. However, the sharing ratio must be agreed upon by all the partners and must be mentioned in the partnership deed.
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Following are the essential elements of a partnership firm except:a)At...
Equal share of profits is not an essential element as profits can be shared at agreed ratio .
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Following are the essential elements of a partnership firm except:a)Atleast two personsb)There is an agreement between all partnersc)Equal share of profits and lossesd)Partnership agreement is for some businessCorrect answer is option 'C'. Can you explain this answer?
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