If the entrepreneur individually unable to take up the business because of shortcomings attached to sole proprietor form of business, he may go for partnership form of business nose characteristics or essential features are as follows:
Association of two or more persons:
Partnership is formed by the association of two or more persons. However, the maximum number of partners cannot exceed ten in case banking business and twenty in case of other business, otherwise it will be illegal.
Partnership arises from contract as the partners enter into agreement to carry on a business. The contract may be oral or written. To become a partner must be of the age of majority and is of sound mind. A minor cannot be a partner but can admitted to the partnership for benefits only with the consent of all the partners.
Existence of lawful business:
Partnership is formed for the purpose of carrying on lawful business only. The term business is very wide and includes every trade, occupation or profession. But when the purpose is to do some charitable work or to share the income of property held in joint ownership, it will not constitute partnership.
Sharing of profits on agreed basis:
Sharing of profits is one of the essential characteristics of partnership. The partners share the profits as per agreement. This implies at the partnership must have the motive to earn profit. Therefore, business carried on with philanthropic motive or only one partner entitled to the entire profit of the business shall 3t be considered as a partnership.
In partnership, there is existence of principal-agent relationship. Every partner is entitled to take part in the management of the business. When one or few partners do manage the business they represent the firm and other partners. As gents, they can bind the firm and the other partners for their action in the ordinary course of business. The principal-agent relationship is a real test of the existence of partnership.
The liability of the partners is unlimited. This implies that the private properties of the partners are at risk as these can be used to meet the obligations of tie firm when the assets of the firm are not sufficient for the purpose. Each partner is jointly id severally liable for the debts and obligations of the business.
Restriction on transfer of shares:
A partner cannot transfer his share in the business an outsider without the consent of all other partners. When there is transfer of share, a new partnership comes into existence even though the same business is continued. Every addition pr deletion of a partner changes the entire partnership deed.
Utmost good faith:
Partnership is a contract of uberrimae fidei, i.e. utmost good faith. There is mutual trust and confidence among the partners. Therefore, every partner must be just and faithful to one another, render true and proper accounts and provide full information concerning the business.