Partnership Fundamentals | Day-1 | Definitions & Basic

Imagine Akhil and Myra have decided to whip up some delicious treats in their very own bakery! According to Section 4 of the Indian Partnership Act, 1932, what does their partnership represent?

• An agreement between two or more persons to carry out a business

• A relation between persons who have agreed to share profits of a business

• An agreement to share profits only

• A relation between employer and employee

Answer explanation

According to Section 4 of the Indian Partnership Act, 1932, a partnership is defined as a relation between persons who have agreed to share profits of a business, making this the correct choice.

Prisha and Nikita are excited about the idea of starting a business together! But before they dive in, they need to know: what is the minimum number of partners required to form a partnership firm?

• 1

• 2

• 5

• 10

Answer explanation

A partnership firm requires a minimum of 2 partners to be formed. Since Arjun and Avni are considering starting a business together, they meet this requirement, making 2 the correct answer.

Imagine Viaan and Eesha are on a thrilling adventure to start their own business! They’re debating whether to go solo or team up. What makes them lean towards a partnership instead of a sole proprietorship?

• Increased capital

• Shared risk

• One partner’s deficiency can be compensated by another’s efficiency

• All of the above

Answer explanation

People prefer partnership over sole proprietorship because it allows for increased capital, shared risk, and the ability for one partner's strengths to compensate for another's weaknesses. Thus, the correct answer is 'All of the above'.

Imagine a fun scenario where our friends are teaming up for different ventures! Which of the following partnerships is NOT a valid one?

• Aarav and Aisha running a trading business for profit

• Eesha and Akhil co-owning a property without selling it

• Three friends forming a consultancy firm for profit

• Four buddies opening a restaurant together for profit

Answer explanation

A partnership involves running a business for profit. Co-owning property without selling it does not constitute a business activity, hence it is NOT a valid partnership.

Imagine Krish and Aashi have teamed up to whip up some delicious treats at their new bakery. What does the term "mutual agency" mean in their exciting partnership?

• Every partner is an agent but not a principal

• A partner can act on behalf of the firm and bind other partners

• Each partner is responsible only for their own actions

• None of the above

Answer explanation

"Mutual agency" means that a partner can act on behalf of the firm and bind other partners to agreements, making them collectively responsible for the actions taken by any partner in the course of business.

Aarav and Neha have embarked on an exciting journey of starting their own partnership firm! As they dive into the world of business, a lively debate sparks between them regarding the liability of partners. Aarav confidently claims that their liability is limited to the amount of their capital, while Neha passionately argues that it is, in fact, unlimited. Who's got the right idea about their liability?

• Limited to the amount of their capital

• Unlimited

• Equal for all partners

• None of the above

Answer explanation

In a partnership, partners have unlimited liability, meaning they are personally responsible for the debts of the firm beyond their capital contributions. This distinguishes partnerships from limited liability entities.

Aanya and Eshaan are excited to embark on a new adventure by starting a Limited Liability Partnership (LLP) for their business dream! But before they dive in, they want to know: in the world of LLPs, what does it mean for their liability as partners?

• Unlimited

• Limited to their agreed capital contribution

• Equal for all partners

• None of the above

Answer explanation

In an LLP, partners have limited liability, meaning they are only responsible for debts up to their agreed capital contribution. This protects personal assets beyond their investment in the LLP.

Imagine Anika, a partner in a bustling law firm, decides to take a wild turn and misuses the firm's bank account for some shady activities (like funding terrorism!). What do you think happens next?

• Only Anika is liable

• All partners are held liable

• Only the managing partner is liable

• The bank is responsible

Answer explanation

In a partnership, all partners can be held liable for the actions of one partner, especially in cases of illegal activities like funding terrorism. This ensures accountability and protects the firm's integrity.

Aarav and Aanya are brainstorming about launching their dream business together! As they dive into the exciting world of entrepreneurship, they realize they need to formalize their partnership. But here's the fun part: how can they create their partnership agreement?

• Only written

• Only oral

• Either written or oral

• None of the above

Answer explanation

A partnership agreement can be established in various forms. The correct choice is 'Either written or oral' because both types are legally valid for forming a partnership.

Vanya and Aashi are embarking on an exciting journey to launch their bakery business! As they whip up delicious recipes, they also need to draft their partnership deed. But wait, they need to figure out which of the following clauses is NOT essential for their partnership deed. Can you help them out?

• Name of the firm

• Salary of employees

• Profit-sharing ratio

• Contribution of capital

Answer explanation

The salary of employees is not a necessary clause in a partnership deed. Essential clauses include the name of the firm, profit-sharing ratio, and contribution of capital.