What is a Partnership?
A partnership is a form of business where two or more people share ownership, as well as the responsibility for managing the company and the income or losses the business generates. That income is paid to partners, who then claim it on their personal tax returns – the business is not taxed separately, as corporations are, on its profits or losses.
Some of the types of partnership are:-
1. Partnership at Will
2. Particular Partnership
3. Partnership for Fixed Term
4. Flexible Partnership
5. General Partnership
6. Limited Partnership.
7. Legal Partnership
8. Illegal Partnership
9. Limited Liability Partnership
10. Partnership for a Certain Venture or Purpose
11. Public Private Partnership.
According to the nature of agreement among partners, the different types of partnership are discussed below:
1. Partnership at Will:
Such partnership exists on the will of the partners, i.e., it can be brought to an end whenever any of the partners gives notice of his intention to do so. This kind of partnership is formed to conduct the lawful business for an indefinite period.
2. Particular Partnership:
A particular partnership is formed for undertaking a particular venture. It comes to an end automatically with the completion of the venture.
(B) According to Tenure:
1. Partnership for Fixed Term:
Such a partnership is for a fixed period of time say 2 years, 5 years or any other duration. The partnership comes to an end automatically at the expiry of the period.
2. Flexible Partnership:
Partnerships which are formed neither for a fixed period nor for any particular venture are called flexible partnerships.
(C) According to Nature:
1. General Partnership:
In the absence of agreement, the provisions of the Indian Partnership Act 1932 are applicable for general partnerships in which the liability of each partner is unlimited.
2. Limited Partnership:
In limited partnership some or all except one partner have a limited liability to the extent of capital contributed by them. All the partners in partnership cannot have limited liability.
(D) According to Legality:
1. Legal Partnership- When the partnership is formed in accordance with the Partnership Act of 1932 and the Indian Contract Act, it is known as Legal Partnership.
2. Illegal Partnership- Partnership becomes illegal when it violates the provisions of any law of the country or when the requisite number of partners goes below the minimum limit or beyond the maximum limit.
Types of Partnership – On the Basis of Duration and Liability
A. Classification on the Basis of Duration:
i. Partnership at Will:
1. This type of partnership exists at the will of the partners.
2. It can continue as long as the partners’ want. It is terminated when any partner give a notice of dissolution. ii. Particular Partnership:
1. This type of partnership is formed for a specified time period to accomplish a particular project (e.g., construction of a building).
2. It dissolves automatically when the purpose for which it was formed is fulfilled or when the time duration expires.
B. Classification on the Basis of Liability:
i. General Partnership:
1. In general partnership, the liability of partners is limited and joint.
2. The partner enjoys the right to participate in the management of the firm.
3. Their acts are binding on each other as well as on the firm.
4. Registration of the firm is optional.
5. The existence of the firm is affected by the death, lunacy, insolvency or retirement of the partners.
ii. Limited Partnership:
1. In limited partnership, the liability of at least one partner is unlimited whereas the other partners may have limited liability.
2. The limited partners do not enjoy the right to participate in the management of the firm.
3. Their acts do not bind the firm or the other parties.
4. Registration of firm is compulsory.
5. Such partnership does not get terminated with the death, lunacy or insolvency of any partner with limited liability.
iii. Limited Liability Partnership
A Limited Liability Partnership (LLP) is a partnership in which some or all partners have limited liabilities.
Limited Liability Partnership is a business organization that allows the limited partners to enjoy limited personal liability while general partners have unlimited personal liability.
It is similar to a general partnership except that it has two classes of partners. The general partner(s) have full management control over the business and also accept full management control for partnership liabilities. Limited partners have no personal liability beyond their investment in the partnership interest. Limited partners cannot participate in the general management and daily operations of the partnership business.
Types of Partnership – Partnership-at-Will, Partnership for Stipulated Period/Particular Partnership and Partnership for a Certain Venture or Purpose
India being a developing country has all general or unlimited firms in which all partners have unlimited liability.
The general or unlimited partnership firms may be of three types:
1. Partnership-at-Will:
This type of partnership is formed to carry on business without specifying any period of time and the partnership continues as long as the partners are willing to continue. It is not decided as to when and how the firm will come to an end. Partnership-at-will can be dissolved by any partner, giving a notice to that effect.
2. Partnership for Stipulated Period/Particular Partnership:
When a partnership firm is established for a specified or stipulated period it automatically comes to an end after completion of the specified or stipulated period.
3. Partnership for a Certain Venture or Purpose:
A partnership established for completing a specific tasks or venture or purpose during a specified period comes to an end automatically on the completion of the venture or purpose.
In India there is no provision for the formation of Limited partnership.
In UK, USA and some of the European countries “Limited Partnership” firms can be formed. Under limited type of partnership firm the liability of the partners is limited except that of one or more partners. There must be at least one partner with unlimited liability in case of limited firm.
Such partner is not entitled to take part in the management of the business and is not allowed to act as an agent of the firm or of the other partners, but he can transfer his interest in the firm to another person with the consent of other partners with unlimited liability. The liability of the partners is limited means to the extent of capital contributed by them and such partners are called limited partners or special partners.
Types of Partnership – General Partnership, Limited Partnership, Limited Liability Partnership and Public Private Partnership
There are three relatively common partnership types: general partnership, limited partnership (LP) and limited liability partnership.
1. General Partnership:
General partnership is a simple partnership and many times referred as Partnership Firm. A general partnership is a business entity that is made up of two or more entities to carry on a trade or business. Each partner contributes money, property, labor, or special skills and each partner shares in the profits and losses from the business.
The law also allows the partners of a general partnership firm to sue or to be sued in the name of firm (only applicable for registered firms), though registration is optional.
2. Limited Partnership:
A limited partnership includes both general partners and limited partners. A limited partner does not participate in the day-to-day management of the partnership and his/her liability is limited. In many cases, the limited partners are merely investors who do not wish to participate in the partnership other than to provide an investment and to receive a share of the profits.
3. Limited Liability Partnership:
A limited liability partnership (LLP) is a form of partnership in which, Individual partners are not personally responsible for the wrongful acts of other partners, or for the debts or obligations of the business. Specifically, a limited liability partnership can only be sued for the total amount of assets in the business.
Owing to flexibility in its structure and operation, it would be useful for small and medium enterprises, in general, and for the enterprises in services sector, in particular. Internationally, LLPs are the preferred vehicle of business, particularly for service industry or for activities involving professionals. LLP is a separate legal entity; means LLP and Partners are distinct from each other. Minimum two partners are required for starting LLP but there is no limit for maximum numbers of partners.
Example:
If a customer slipped on a pickle in your grocery store and is suing for their injuries, they cannot receive more than the total value of your grocery store. This partnership is a popular choice for law firms and medical practices to ensure that customers cannot sue for assets such as the practitioner’s home.
4. Public Private Partnership:
Public Private Partnership means an arrangement between a government/statutory entity/government owned entity on one side and a private sector entity on the other, for the provision of public assets and/or public services, through investments being made and/or management being undertaken by the private sector entity, for a specified period of time, where there is well defined allocation of risk between the private sector and the public entity and the private entity receives performance linked payments that conform (or are benchmarked) to specified and pre-determined performance standards, measurable by the public entity or its representative. These schemes are sometimes referred to as PPP, P3 or P3.
“Public Private Partnership (PPP) is a partnership between the public and private sector for the purpose of delivering a project or service traditionally provided by the public sector. Through this agreement, the skills and assets of each sector (public and private) are shared in delivering a service or facility for the use of the general public. In addition to the sharing of resources, each party shares in the risks and rewards potential in the delivery of the service and/or facility”.
“Public Private Partnerships (PPPs) are arrangements between government and private sector entities for the purpose of providing public infrastructure, community facilities and related services. Such partnerships are characterized by the sharing of investment, risk, responsibility and reward between the partners. The reasons for establishing such partnerships vary but generally involve the financing, design, construction, operation and maintenance of public infrastructure and services.”
Example:
Gurgaon is a good example of large scale public-private participation in urban development in India, The Uttaranchal Mobile Hospital and Research Center (UMHRC) (Technology Information, Forecasting and Assessment Council (TIFAC), the Government of Uttaranchal and the Birla Institute of Scientific Research (BISR)) and HPCL-Mittal Energy partnership.
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