If you are looking to know about the types of partnership in India, you are at the right place. Here we will discuss all types of partnership available in India. Two or more proprietors own a partnership business. They share the responsibility, incomes, and losses generated by the company. The partners claim that income on their tax returns. The company does not have separate taxes on its profits and losses.
The partners are all equally responsible for the profits and losses of the company. No business activity can be carried out without the consent or knowledge of the other partners. All the necessary provisions regarding the partnership firm are defined in the partnership Act (1932).
The operation of the business, its profits, and losses are directed by the partnership deed that was regulated during the registration. The Act furnishes details regarding the structure and types of partnership firm, and other information regarding the same.
Table of Contents
Features of Partnership
- Agreement: The partnership firm is established based on a contract between two or more persons.
- Profit sharing: The profits are divided among the partners based on the agreement.
- Lawful business: The business establishments based on partnership must abide by the law.
- Membership: The minimum requirement to form a partnership business is two people. A maximum of twenty people can involve in a partnership agreement. In the case of the banking business, the number of partners is restricted to ten members.
- Unlimited liability: every partner can have total, joint, and several liabilities.
- Principal-agent relationship: A partner is also the agent of the firm. He is allowed to act on behalf of the firm. He is accountable for all his actions and the decisions taken on behalf of the other partners.
- Collective management: Partners and firms are a single entity. In the case of any contract, all the partners are individually and collectively responsible for it.
- Non-transferability of shares: The share of interest cannot be transferred among the partners without the consent or knowledge of other partners.
Types of Partnership Based on Their Liability
Based on the liability of the partners, there are three types of partnership described below:
In a general partnership, all the partners are equally involved in managing the business. They have an equal share of the workload, liability, and profits. The flexibility of general partnerships allows participants to establish their enterprises however they see suitable. It enables those partners to have greater operational control.
Limited partnership (LP)
Outside investors can buy shares in a company in a limited partnership, but their liability and involvement are limited based on their contributions. This partnership is more flexible in decision-making and ownership but also complicated.
Limited liability partnership (LLP)
In this type, some or all the partners have limited liability. Every partner is liable only to a limited extent. They are not held responsible for the other partner’s actions. A limited liability partnership doesn’t require a minimum capital or maximum partners for its establishment.
Types of Partnership Based on Duration
Based on the duration, there are three types of partnership described below:
Partnership at will
This partnership exists solely based on the partner’s will. There is no particular purpose or fixed period for this type of partnership. The company’s clause does not include the date of expiration for such a partnership.
Partnership for a fixed term
In a fixed-term partnership, the partners fix a date of expiration during the formation of the partnership. The partnership is terminated on the decided date. If the partnership continues even after the date of expiration, then it becomes a partnership at will.
This type of partnership is formed for running a continuous business. It can also be created for one particular venture or undertaking. This partnership is established to complete a specific project like building construction. The partnership dissolves after the completion of the project. The partnership can be continued if the partners agree to continue the collaboration.
We hope you have now clear understanding of different types of partnership in India and their features. Through partnership businesses, proprietors have support to carry their business and achieve their goals.
The company can be run effortlessly under the guidance of two or more owners. When the burden is equally divided among the partners, the business can be operated successfully.
A partnership-based establishment can generate huge profits. A partnership firm has many aspects to consider, but it’s worth the toil and agreement. It paves the way to develop the business and expand the relationship with partners and customers.