A Partnership forms when two or more individuals make a decision that they will jointly begin a business or a venture by contributing assets in the form of investments, and this partnership is created only with the intention of making profits. In such a scenario, the individuals contributing to jointly begin a business are called partners, and the business is collectively called a partnership firm.
The formation and operations of a partnership firm are governed by the Partnership Act of 1932. The business operations, share of profit and loss, and investments are dictated by way of the partnership deed. The Act further provides for the various types of partnership firms and their partners.
Partnership Firm
Partnerships are business organizations where two or more individuals agree to collaborate and share profits and losses. In a partnership, each partner contributes capital, skills, knowledge, or labor to the business, and all partners participate equally in its management and decision-making.
Partnership Deed
An agreement defining the terms and conditions of a partnership is called a partnership deed, also called a partnership agreement. The partnership deed defines each partner’s rights, duties, obligations, and rules for the partnership’s management, operation, and dissolution.
The partnership deed typically includes the following information:
- Name and address of the partnership
- Names and addresses of the partners
- Nature of the partnership business
- Capital contributions of each partner
- The profit-sharing ratio among the partners
- Roles and responsibilities of each partner
- Rules for decision-making and management of the partnership
- Procedure for admission and withdrawal of partners
- Process for dispute resolution among partners
- Rules for dissolution of the partnership
A well-drafted partnership deed can help to prevent disputes and conflicts between partners by clearly defining the terms of the partnership. It can also serve as a legal document that can be used to enforce the rights and obligations of each partner in the event of a dispute or legal proceeding.
Types of Partnerships in India
- General Partnerships – In this type of partnership, every partner has the right to make decisions regarding the operation and management of the firm. However, the partner’s liability is unlimited, which means that under circumstances of financial loss by the partner, their personal assets can be used to make good the debts and clear the creditor’s claims.
General Partnerships are further divided into two categories –
- Partnership at will – A partnership at will is created without a specific time limit prescribed for its closure. This dissolution of the partnership is based upon the mutual consensus of the partners when and if the need arises. Hence, the dissolution of this type of partnership is not pre-decided.
- Particular Partnerships – This type of partnership is entered into with the end goal of carrying out a specific undertaking. It is for a particular project of temporary contract-based work or specific business only. Once the objective of the business has been fulfilled, the partnership is dissolved.
However, at the discretion of the partner, they may continue the partnership.
- Limited Liability Partnership (LLP) – This type of partnership is different from a general partnership in the aspect that it is a corporate form of business organization. The liabilities of the partners are limited to the extent of their contributions towards the capital.
Hence, the partners are under no obligation to redeem the debts of their business with their personal assets. LLP is governed by the Limited Liability Partnership Act, 2008.
Different Types of Partnership Firm
These types of partnership firms are governed under the Limited Liability Partnership Act, 2008. The most important aspect of these types of partnership firms is that a partner is not held personally liable to clear the debts of the firm. That is to say that the personal assets of the partner will not be utilized towards clearing the debts of the firm.
The types of partnership firm are distinguished on the basis of their registration. However, it must be noted that registration of these types of partnership firm is not mandatory. Hence, both the registered and unregistered firms will be recognized by law and be valid.
The different types of partnership firm are as follows: –
- Unregistered Partnership Firm- The unregistered partnership firm is one of the two different types of the partnership firm. It is established by the execution of an agreement between the partners. It allows the partners to carry on a business in a manner that is stated and provided for in the agreement.
- Registered Partnership Firm- This is the second one in the different types of the partnership firm. This Partnership Firm has to be registered with the Registrar of Firm having jurisdiction over the place where the business is formed and situated. The registration of the firm includes payment of the registration fees to the registrar of firms.
FAQs
Under which act is a Partnership deed registered?
A Partnership deed is always registered under the Indian Registration Act, 1908.
What is the primary use of a Partnership deed?
he Partnership deed usually serves as evidence in the eyes of the law in case a dispute arises between the partners.