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Class : 11
Unit : Business


State the characteristics of partnership firm.

Ans : The characteristics of partnership firm are presented below: i) Formation:- Partnership firm is formed by minimum two or more than two person with the investment of their joint capital. In Nepal, according to Partnership Act 2020 B.S. the minimum number of members must be two and for maximum number it is not mentioned in the act. ii) Mutual Agreement:- Partnership is established on the basis of mutual agreement among the individuals. There must be oral or written agreement among person’s to establish a partnership firm. The business activities of the firm should run on the basis of partnership deed. iii) Transfers of Share:- An individual partners cannot transfer his share of partnership firm to others without the consent of all the existing partners. The transfer of share of a partner to other without agreement with existing partners may lead to dissolution of the firm. iv) Sharing of Profit or Loss:- There must be agreement among the partners for the sharing of profit or loss of the firm. On the investment of capital, profit should be distributed among the partners and losses should be shared too. In the absence of agreement, profit or loss should be distributed equally. v) Unlimited liabilities:- Partnership firm is unlimited liabilities in nature. The liabilities of the partners may be more than their capital investment. Thus, if the partners become inadequate to pay it’s all debts, partners have to sell their personal properties for the payment of debts. vi) Lack of Separate Entity:- Legally a partnership is not regarded as a separate entity distinct from it’s members. It cannot make agreement contract in it’s own name. All the activities are done in the name of partners. Each partner is individually or jointly liable for each and every activities of the firm. vii) Management:- The management of the firm may be handled by all the partners or any of them on the basis of mutual consent. For the management of the firm, partners come into an agreement either to take active part or to stay as sleeping partners. viii) Limited Capital:- The capital investment of partnership is more as compare the sole trading concern but the capital may still insufficient than joint stock company. So the capital investment of partners is limited.
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