Partnership is a form of business organization wherein two or more persons join together in order to carry out business. A partnership can be considered as an improvement of “sole proprietorship” wherein a single person carries out his business with his individual resources, skills and efforts.
The major disadvantage of being a sole proprietor is that since there is only a single person involved in the business, it is difficult for him to manage the huge resources and investments in the business. On the other hand, in a partnership, a number of persons are involved and they can pool their resources in order to form and manage a much larger business. Moreover, if there is a loss in the business, it can be divided amongst the partners of the partnership firm.
A partnership is an agreement between two or more persons who wish to share profits and losses for the partnership firm. However, in a partnership, all the partners do not participate in all the activities of the firm for profits and losses equally. There are various types of partnership in accordance with their extent of liability and their participation in the firm. The main purpose of this article is to discuss the various types of partners in a partnership.
Definition of Partners
According to Section 4 of the Indian Partnership Act, 1932, a partnership is defined as a relationship between two persons who mutually agreed to share the profits and losses in the business. Therefore, persons who have entered into an agreement with one another are individually known as “partners”.
Furthermore, as per Black Law dictionary, a partner is a member of a firm or co-partnership; who has united with others in order to form a partnership in business.
Types of Partnership
- According to objectives
- According to tenure
- According to nature
- According to legality
- On the basis of Registration
1.According to Objectives
1A.Partnership at Will
When a partnership is created, it’s upon the discretion of the partners to decide that till when they want the partnership to exist. Therefore, whenever a partnership is created without determination of a specific time limit, it is known as partnership at will.
Such partnership is based upon the will of the partners and it can be brought to an end whenever any of the partners serves a notice depicting intention for the same. This partnership is created to conduct a lawful business for an indefinite period.
Furthermore, the dissolution of a partnership is not pre-decided and it is taken into consideration when the need arises. It’s upon the partners to decide among themselves the requisite time period of partnership.
The main objective behind making a particular partnership is to carry out a specific undertaking. Such a partnership is created between partners for a project of a temporary contract-based work or a specific business only, this is known as a particular partnership. In particular partnerships, once the objective of the business partnership is achieved, then partishership gets dissolved. In simple words, this partnership is formed for undertaking the particular venture and it comes to an end automatically after the completion of tasks involved in the venture. Nevertheless, the partners have a choice to continue the partnership by coming to an agreement.
For example: Partnership made for production of a movie or a construction of a building.
2.According to Tenure
2A.Partnership for a Fixed Term
In such a type of partnership, the partnership is for a fixed period of time say 5 years, 2 years or any specified duration of time. The partnership automatically comes to an end after the expiration of the said period.
Partnerships which are neither for a fixed duration of time nor for any particular venture are called flexible partnerships.
3.According to Nature
In a general partnership, each partner reserves a right to make decisions about the working and management of the firm. It is pertinent to note that, the liability of the partner in such a type of partnership is unlimited. It means that if there is any financial error or loss incurred by one partner, all the other partner’s assets would be taken into consideration in order to pay the liabilities incurred in the form of debts.
If there is absence of an agreement, the provisions of the Indian Partnership Act, 1932 are applicable for general partnerships wherein the liability of each partner is limited.
3B.Limited Liability Partnership (LLP)
Unlike general partnership, limited liability partnership is a corporate form of business organization. In such a type of partnership, the liabilities are limited to each partner in accordance with the contribution made by them in the business. Furthermore, the personal property or assets of the partner cannot be attached to pay back the liability of the firm. It is pertinent to note that this organization is not governed under Partnership act,1932, but is governed under Limited Liability Partnership Act, 2008.
In a limited liability partnership some or all except one partner have a limited liability in accordance with the extent of capital contributed by them. It is pertinent to note that, in partnership all the partners cannot have limited liability.
4.According to Legality
The partnership can become illegal when it violates the provisions of any law of the country or when the requisite number of partners exceeds beyond the time limit or below the time limit.
5. On the basis of Registration
The registration of a firm is not mandatory under Partnership Act, 1932. Both Registered firm and unregistered firm are valid in the eyes of Law.
5A.Unregistered Partnership Firm
An unregistered firm is established when there is execution of agreement between the partners. The partnership firm which is unregistered allows the partners to carry out business activities as provided in the agreement.
5B.Registered Partnership Firm
In order to register a partnership firm, it must be registered with the Register of Firm (RoF) having the requisite jurisdiction over the place where the Firm is carrying out its business activities. The application of registration involves the payment of registration fee to RoF, which varies from state to state in accordance with the state laws. In a partnership, registration of a firm is preferred due to benefits it offers such as filing a suit in the court.
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