Kids, we will move to the next module. Discuss the concept of Partnership Firm and state its features. Means we will see about partnership, more than two people. Right, coming together to do business, you can see in the following picture.
Now, partnership is started by an agreement between persons. Now, two or more persons come together and have sharing in profit, as per the profit sharing ratio. Right, they sign in an agreement, where terms and conditions are mentioned. This agreement maybe oral or maybe a written one. And kids, always written agreement is better, right, it acts like an evidence, yes. Minimum two persons are required to start this partnership firm and the maximum number is 20, in case of general business and in case of banking there are only 10. Do remember, right, minimum number of people 2, maximum banking is 10 and non-banking is 20. Now, let’s see third feature, partnership firm is started to carry on a business activity. Let’s check an example alongside, raw material is collected then some processing done, right, cutting, shaping, polishing and what do we get, finished goods, wooden table and chairs and many more articles. So, partnership business is carried out for all these business activities. Now, the ownership of partnership firm is joint, remember that 2 or more than 2 people that is partners are joint owner of assets and liabilities of business, right. All this property belongs to all the partners in the firm. All the debt also belongs to all the partners in the firm. The partners manage business jointly, everything will be done together, it means all the decisions are taken by mutual consultation means after taking permission or consulting each other. Right, you can see there, they are consulting each other, we are going to start something new, we are going to start something different. The profit and loss are shared in the decided proportion or as per the agreement, agreement or deed you can call it as, any legal instrument in writing that is signed or attested by all the partners. The liability of the partners is unlimited, joint and several. Very, very important kids, do remember and understand very well. Now let’s take an example four partners in a firm, right. We name it as A, B, C, D and what is outstanding? Rs. 1 lakh. Now, jointly what you can see here. Jointly, individually they are responsible to pay 25,000 each, correct kids. So, this is joint, do remember that. Now, let’s check severally, now what happens here, there are four partners. Now, one of them dead but still the outstanding amount is rupees one lakh. So, you can see the remaining three solvent partners sharing that one lakh into three equal parts. So, that is you can see there, three equal parts, right, kids.
Another, what happens now, second condition, again for severally, one was dead, second partner is insolvent now. So, two remaining solvent partners will share one lakh into two equal parts, right. And finally again, if even the third partner becomes insane means mad, unsound mind, then the last partner, which is solvent will share or take the burden of every penny which is remaining outstanding, you can see one lakh outstanding entirely has been taken care or paid off by the solvent partner. So, kids, do remember, unlimited, joint and several, right, liability unlimited, I hope you remember that. No difference between personal assets and business assets and joint and severally we did just now. The share in partnership cannot be transferable to any other person without the consent of other partners. It means interest of partnership is non-transferable. As you can see here, these are the partners of Bajate Raho Firm. Now, Mr. Y wants his son to join the business. He needs to consult everyone and if everyone approves, he can bring in his son, right. So, Mr. R becomes the new partner in the business.
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