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12a.

Partnership as a Form of Business in Modern-Day Startups

Partnership remains one of the most popular forms of business organization, particularly for
small and medium enterprises and startups. It allows entrepreneurs to pool resources, share
expertise, and jointly manage business risks.

(i) Meaning of Partnership A partnership is an agreement between two or more individuals to


carry on a business with a view to sharing profits. Partners contribute money, skill, or other
resources, share responsibilities, and jointly bear losses. In the context of modern-day startups,
partnerships provide flexibility, speed of decision-making, and combined expertise—important for
innovation-driven ventures.

(ii) Characteristics of Partnership

Number of Partners: Minimum of two and typically up to 50 partners (varies by law).


Contractual Relationship: Partnership is based on a mutual agreement, usually in the form of
a partnership deed.
Competence of Partners: Partners must be legally capable of entering into contracts. Sharing
of Profit and Loss: Profits and losses are shared according to the partnership agreement.
Principal-Agent Relationship: Each partner acts as an agent of the firm and can bind the firm
in business transactions.
Unlimited Liability: Partners are personally liable for the firm’s debts, making them
accountable beyond their capital contribution. Transfer of Interest: A partner cannot transfer
ownership or rights without the consent of other partners. Legal Status: The partnership firm
is not a separate legal entity; partners are jointly responsible.
Voluntary Association: Partnership is formed voluntarily by mutual consent. Registration:
Registration is optional but provides legal recognition and enforcement of rights. Dissolution
of Partnership: A partnership can be dissolved by mutual consent, expiration of term,
bankruptcy, or death of a partner.

(iii) Advantages of Partnership

Firm Easy Formation: Less complex and cheaper than forming a company. Larger Resources:
Pooling of capital and skills increases the firm’s ability to undertake bigger projects. Flexibility
in Operation: Partners can make decisions quickly without rigid formalities.
Better Management: Combines diverse skills, knowledge, and experience of partners. Sharing
of Risk: Risks and losses are shared, reducing individual burden. Protection of Minority
Interest: Partnership deeds can include clauses to protect smaller partners’ rights.
Better Public Relations: Often perceived as reliable because of personal involvement and
accountability of partners. Relevance to Startups: In startups, partnerships help combine
technical expertise and financial resources, enabling faster product development, fundraising,
and market entry.

(iv) Suitability of Partnership

Firm Partnership is most suitable for: Small to medium startups requiring shared capital and
expertise. Professional service firms like consultancy, law, accounting, or IT services.
Ventures where mutual trust and close cooperation are possible. Businesses that need
flexibility and quick decision-making without extensive formalities.
Modern-Day Perspective: Startups often form partnerships to combine technical founders,
marketing specialists, and investors. Hybrid models like limited liability partnerships (LLPs)
reduce risk while retaining flexibility. Partnerships are ideal for innovative projects with high
uncertainty but require close collaboration.

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