The limitations and deficiencies of sole proprietorship such as limited financial resources, limited, managerial skills and concentrated risk led to the emergence of partnership as a form of organization. When two or more persons join together in a business with common ownership and management under an agreement, it is known as partnership.

The proprietor of an expanding business may prefer a partner to appointing a manager because of certain obvious advantages. The manager does not bring capital and he does not share business risks. But a partner generally brings capital to the business and shred the risks of business. As a result, a partner has personal interest in the business of partnership. Sometimes, a partner is admitted into the business who does not offer capital to the business, but brings specialized knowledge into the partnership. In this case also, the new partner will feel fully committed to the business as he has a personal stake in it. Thus, it is advisable for a businessman to find partner s to share business responsibilities and risks with him if he wants to increase the scale of business operations.

Definition of Partnership

According to L.H. Haney, “partnership means the relation existing between persons who agree to carry on a business in common with a view to private gain. “A partnership is an association of tow r more persons who carry on business together for the purpose of earning profits. Section 4 of the Indian Partnership Act, 1932 defines partnership as the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. The persons who form a partnership are individually known as ‘partners’ and collectively ‘firm’. The name under which the business is conducted is known as the ‘firm name’.

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