Partnership firms is a very popular form of business in India. It is when two or more persons come together with a common objective to earn a profit. It cannot be formed by a single person. To form a partnership two or more persons are required to come together. All the persons who come together agree to share profit as well as losses in the equal ratio or predetermined ratio. All types of partnerships are governed under Indian partnership act of 1932.
- Formation- Partnership registration can be done under the provisions of the partnership act. It came into existence with a legally enforced agreement in which all the terms and conditions, rules and regulations are written.
- Liability- The partners of the partnership have unlimited liability. This means that personal assets of the partners may be used for paying debts of the company.
- Continuity- After the death, insolvency or retirement of any partner, the partnership comes to its end. However, if the remaining partners want to continue the business, they can continue but on the basis of a new agreement.
- Members- Minimum numbers of members to start a partnership is 2 while the maximum number in case of the banking industry is 10 and in any other case are 20.
- Easy to form- Partnership firms is easy to form as well as to close without many formalities. It can be formed with an agreement and registration is also not mandatory for it.
- More capital- As there are two or more partners, therefore, funds raised can be more. It gives an advantage over various other forms such as sole proprietorship where an amount of capital is limited.
- Risk sharing- As per the provisions, the risk is shared by all the partners. The burden of losses doesn’t come on one individual.
- Secrecy- Partnership firms is not required to publish its accounts which lead to the secrecy of its operations. Confidentiality of information is maintained.
- Unlimited liability- One of the biggest demerits of a partnership is that its partners have unlimited liability. This means that personal assets or property of the partners may be used for paying companies debts.
- Lack of continuity- Partnership comes to an end with the death, insolvency or retirement of any of its partner. This results in the lack of continuity. However, if the remaining partners want to continue with the business then they have to form a fresh agreement.
- Conflicts- Possibility of conflicts always arises when two or more persons are involved. The difference in opinion or some issues may lead to disputes between partners. This comes in the way of a successful partnership.
- Limited resources- Resources are limited as there is the restriction on the number of partners. As a resulting partnership, firms face problems in expansion beyond a certain size.
Types of Partnership Firms
There are two factors on the basis of which partnership is classified. One is on the basis of duration and on the basis of liability.
On the basis of duration, it is classified into
- Partnership at will- This kind of partnership can be formed and closed on the will of the partners. It can continue as long as the partners want and can end on the wish of the partners.
- Particular partnership- There are certain kinds of partnership which come into formation for certain purposes. For example, a particular project for construction of a building is called particular partnership.
On the basis of liability, it is classified into
- General partnership- In this liability of partners is unlimited as well as joint. The partners have right to participate in management and their acts are binding on each other. Registration is optional.
- Limited partnership- In this liability of at least one partner is unlimited whereas rest has limited liability. The partners don’t have right to participate in the management. Registration is compulsory for this.
A partnership is a voluntary association of people who come together for a common objective. An agreement is made between partners which specify rules and regulations, profit sharing ratio so that there is no misunderstanding later among the partners. The agreement can be oral or written. The written agreement is called the partnership deed.
Below mentioned things are included in partnership deed
- Name of the firm
- Duration of business
- Profit sharing ratio
- Method of solving disputes
- Investment by each partner
- Procedure for dissolution of the firm
- Salaries of the partners
Registration of the partnership
Registration is made to have a proof of the existence of the partnership firms. It is optional for a firm to get registered. In case a firm does not get registered it is deprived of many benefits. The consequences of non-registration are as follows:
- A partner of an unregistered firm cannot file a suit against the firm or others partners.
- The firm cannot file a suit against third parties
- The firm cannot file a case against the partners.
Therefore it is advisable to get its company registration to enjoy these benefits.