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Partnership Firms


Definition
According to the Partnership Act 1890, “Partnership is a voluntary association of people (from two to twenty) which is formed to carry on business with the view to make profit”. Partnerships are commonly found in farming, building and in the professions like law, accountancy etc.

Advantages
v  More capital can be raised
v  Less legal formalities. It requires a contract called ‘Partnership Deed’
v  More efficient management can be formed
v  There can be limited partners

Disadvantages
v  Ordinary partners have limited liability
v  Partnerships are usually unstable and affects continuity
v  Limited scope for expansion


Difference between Sole Traders and Partnerships

Sole Trader
Partnership Firms
v  Sole Proprietorship is a one man business
v  Profits belong to the proprietor
v  Losses can not be shared
v  Division of labour is not possible
v  It requires no agreement
v  Effective control over the business
v  Quick decisions can be taken
v  Decisions are often hasty
v  It is owned by 2-20 partners
v  Profits are shared between partners
v  Losses can be shared between partners
v  Division of labour is possible
v  It requires an agreement /deed
v  No one partner has complete control
v  It takes more time to make decisions
v  Decisions are more reliable

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