Partnership Definition

Partnership is a type of business organization in which two or more persons agree to carry on a business together and share its profits and losses. The persons who enter into a partnership are known as partners.

Features of Partnership

- Agreement between Persons: Partnership is formed by an agreement between two or more persons to carry on a business together. The agreement may be oral or in writing.
- Association of Persons: Partnership is an association of persons who come together to carry on a business with a view to earning profits.
- Sharing of Profits and Losses: The profits and losses of the partnership business are shared among the partners in proportion to their agreed shares.
- Unlimited Liability: Partners in a partnership have unlimited liability. This means that the personal assets of the partners can be used to meet the liabilities of the firm.
- Mutual Agency: Each partner is an agent of the firm and can bind the firm by his/her actions.

Types of Partnership

- General Partnership: In a general partnership, all partners have unlimited liability and share equally in the profits and losses of the firm.
- Limited Partnership: In a limited partnership, there are one or more general partners who have unlimited liability and one or more limited partners who have limited liability and do not participate in the management of the firm.
- Limited Liability Partnership (LLP): In an LLP, all partners have limited liability and can participate in the management of the firm.

Advantages of Partnership

- Easy Formation: Partnership can be easily formed by an agreement between two or more persons.
- More Capital: Partners can contribute more capital to the business than a sole proprietor.
- Shared Responsibility: The responsibility of managing the business is shared among the partners.
- Flexibility: Partnership has greater flexibility as compared to other forms of business organization.

Disadvantages of Partnership

- Unlimited Liability: Partners have unlimited liability which means that their personal assets can be used to meet the liabilities of the firm.
- Limited Life: Partnership has a limited life as it comes to an end on the death, retirement or insolvency of a partner.
- Conflict among Partners: There may be conflicts among partners which can affect the smooth functioning of the business.
- Lack of Continuity: Partnership lacks continuity as it comes to an end on the death, retirement or insolvency of a partner.

A is correct option .. A partnership is an agreement between persons to carry business activities