What is Partnership?

A partnership is a kind of business where a formal agreement between two or more people is made who agree to be the co-owners, distribute responsibilities for running an organization and share the income or losses that the business generates.

Features of Partnership:

Following are the few features of a partnership:

• Agreement between Partners: It is an association of two or more individuals, and a partnership arises from an agreement or a contract. The agreement (accord) becomes the basis of the association between the partners. Such an agreement is in the written form. An oral agreement is evenhandedly legitimate. In order to avoid controversies, it is always good, if the partners have a copy of the written agreement.

• Two or More Persons: In order to manifest a partnership, there should be at least two (2) persons possessing a common goal. To put it in other words, the minimal number of partners in an enterprise can be two (2). However, there is a constraint on their maximum number of people.

• Sharing of Profit: Another significant component of the partnership is, the accord between partners has to share gains and losses of a trading concern. However, the definition held in the Partnership Act elucidates – partnership as an association between people who have consented to share the gains of a business, the sharing of loss is implicit. Hence, sharing of gains and losses is vital.

• Business Motive: It is important for a firm to carry some kind of business and should have a profit gaining motive.

• Mutual Business: The partners are the owners as well as the agent of their firm.  Any act performed by one partner can affect other partners and the firm. It can be concluded that this point acts as a test of partnership for all the partners.

Unlimited Liability:  Every partner in a partnership has unlimited liability.

A partnership is divided into different types depending on the state and where the business operates. Here are some general aspects of the three most common types of partnerships.

• Duration: It depends upon the Time Period of partnership
• Liability: It depends upon the Liability of all the partners

Let’s discuss the types of partnership deeds upon Liability first.

General Partnership

A general partnership comprises two or more owners to run a business. In this partnership, each partner represents the firm with equal right. All partners can participate in management activities, decision making, and have the right to control the business. Similarly, profits, debts, and liabilities are equally shared and divided equally. 

In other words, the general partnership definition can be stated as those partnerships where rights and responsibilities are shared equally in terms of management and decision making.  Each partner should take full responsibility for the debts and liability incurred by the other partner. If one partner is sued, all the other partners are considered accountable. The creditor or court will hold the partner’s personal assets. Therefore, most of the partners do not opt for this partnership.

Limited Partnership

In this partnership, includes both the general and limited partners. The general partner has unlimited liability, manages the business and the other limited partners. Limited partners have limited control over the business (limited to his investment). They are not associated with the everyday operations of the firm.

In most of the cases, the limited partners only invest and take a profit share. They do not have any interest in participating in management or decision making. This non-involvement means they do not have the right to compensate the partnership losses from their income tax return.

• Limited Liability Partnership

In Limited Liability Partnership (LLP), all the partners have limited liability. Each partner is guarded against other partners legal and financial mistakes. A limited liability partnership is almost similar to a Limited Liability Company (LLC) but different from a limited partnership or a general partnership. 

Now, Let’s come to the type of partnership deed on the basis of duration.

Partnership at Will

Partnership at Will can be defined as when there is no clause mentioned about the expiration of a partnership firm. Under section 7 of the Indian Partnership Act 1932, the two conditions that have to be fulfilled by a firm to become a Partnership at Will are:

• The partnership agreement should have not any fixed expiration date.
• No particular determination of the partnership should be mentioned.  

Therefore, if the duration and determination are mentioned in the agreement, then it is not a partnership at will. Also, initially, if the firm had a fixed expiration date, but the operation of the firm continues beyond the mentioned date that it will be considered as a partnership at will.

Particular Partnership

As the name suggests, it is mainly created for a task, contract, project, construction etc. Means, this partnership is only valid till the time the goal of making this partnership is accomplished. This partnership is only valid for a particular duration.

It is a partnership formed for a specific time period or to achieve a specified objective. It is automatically dissolved on the expiry of the specified period or on the completion of the specific purpose for which it was formed.

For example, 3 people have decided to create a society. They created a partnership before starting to make the society. So they created a partnership firm for that purpose but when the society is going to get completed, at that point their partnership will also end.