Partnership
Partnership and its types
In a partnership, every owner contributes something to the welfare of the firm. These can be in the form of ideas, property, money and sometimes a combination of all these. Owners of a Partnership share profits and losses in proportion to their respective investments.
Partnership businesses in India are regulated by Section 4 of the Indian Parliament Act of 1932.
Characteristic of a Partnership Firm
A few distinct characteristics of partnerships are mentioned below:
Agreement- Partners, who decide to start this business, have to make a formal mutual contract between them. This agreement is usually written following the norms of government act.
Number of Partners- According to section 11 of Indian Parliament Act 1932, the maximum number would be 10 for a banking Partnership business. Furthermore, this number rises to 20 for other Partnership businesses.
Share of Profit- One of the primary features of Partnership is to make and share the profit among the partners as per agreed ratios. However, the income will be distributed equally if there’s no clause mentioned in the agreement about the same.
Liabilities- In general partnerships, all the partners are subjected to liabilities. It means all of them are collectively responsible for recovering all debts of the firm, even if they have to liquidate their personal assets.
Non-Transferability of Interest- By any means, a partner cannot shift his/her interest from existing firm to others. There is a strict restriction upon inclusion and retirement of the partners. Even a minor change in the ownership of a business has to make with the consent of the other members involved in Partnership.
Types of Partnership
General Partnership- In this Partnership, the partners equally participate in the day-to-day activities and decision-making prospects of a firm. At the same time, they are equally responsible for all profits, liabilities and debts of the company. If one partner is found guilty for any discrepancy in business, the others will be held accountable for the same.
Limited Partnership- A Limited Partnership includes one or more than one partners whose liabilities are limited. A limited partner usually takes his/her share of profit without involving in daily managerial activities and decision making. Because of the limited liabilities, they don’t have to bear the loss incurred upon business.
Limited Liability Partnership- In LLP, liabilities on partners are limited. They are not responsible for any legal and financial crisis of a firm. An LLP partner is somewhat similar to a Limited partner although they are not the same.
Partnership at Will- Such Partnership solely depends on the will of a partner. He/she can break the bond anytime they wish. This type of Partnership is usually created for lawful business which usually lasts for an indefinite time.
You can research more on this topic to gain knowledge about the other kinds of Partnership prevalent in India.
Advantages of Partnership Firm
Easy to Start- A simple agreement, verbal or written, is enough to initiate a Partnership firm.
Flexible Operations- There is a considerable scope for making changes in the business operations and strategies if the partners think these are needed for overall growth of the firm.
Greater Resources- Since partnership comprises financial contribution from all partners, it infuses large capital to business. As a result, it increases a firm’s borrowing capacity.
Reduced Risk Factor- As all the incomes and losses are divided among the partners, the risk for the losing money or defaulting can be narrowed down substantially.
Combined Skills- Another great advantage of partnership has to be the conglomeration of unique ideas, knowledge and skills from different partners with expertise in their respective fields.
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