Partnership Firm- Indian Partnership Act, 1932
A partnership is a relationship between two or more persons who have agreed to share the profits of a business carried on by all or any of them acting for all, as defined under the Indian Partnership Act, 1932.
People who have entered into a partnership with each other are called ‘Individual Partners‘ and collectively ‘a firm’, and the name under which their business is carried on is called the ‘firm name.’
Types Of Partnership Firms in India
1. Partnership at Will
According to section 7 of the Act, a partnership at will is a partnership firm when:
- There is no fixed period that has been agreed upon for the duration of the partnership.
- There is no provision made as to the determination of the partnership.
These two conditions must be satisfied before it can be regarded as a partnership for will. But where there is an agreement between the partners either for the duration of or the determination of the partnership, then it is not a partnership at will.
It may be dissolved by any partner by giving notice in writing to all the partners of their intention to dissolve the same.
2. Partnership for a Fixed Period
A partnership for a fixed period is where a provision is made by the contract for the duration of the partnership. It is created for a particular period that comes to an end on the expiry of the fixed period.
3. Particular Partnership
I may be organized for the prosecution of the single adventure as well as the conduct of the continuous business. Where a person becomes a partner with another person in any particular adventure or undertaking is called a particular partnership.
If it is constituted for a single adventure or undertaking, the subject to any agreement is dissolved by the adventure or completion of the undertaking.
4. General Partnership
Where it is constituted with respect to the business in general, then it is called a general partnership. It is different from a particular partnership, as in this case, the liability of the partners extends only to that particular adventure or undertaking, which is not the case in a general partnership.
What is a Partnership Deed?
A Partnership Deed is a result of an agreement in which no formalities are required. It may be in written or formed verbally. But it is desirable to have the partnership agreement in writing to avoid any future disputes. The document in writing that contains the various terms and conditions as to the relationship of the partners to each other is called the partnership deed. It should be drafted with care and stamped.
It may contain the following information:-
- Name of the firm.
- Name of all the partners.
- Date of commencement.
- Nature and place of the business of the firm.
- Duration of the firm.
- Capital contribution of each partner.
- The profit-sharing ratio of the partners.
- Admission and Retirement of the Partner.
- Rates of interest, Drawing, and Loans.
- Provision for settlement accounts in case of the dissolution of the firm.
- Provisions for salaries or commissions, payable to the partners, if any.
- Provisions for the expulsion of a partner in case of gross breach of duty or fraud.
Types Of Partners in a Partnership Firm
1. Active Partner
He acts as an agent of other partners for all acts done in the ordinary course of business. In the event of his retirement, he must give public notice to absolve himself of liabilities for acts of other persons done after his retirement.
2. Sleeping or Dormant Partner
‘Sleeping’ or ‘dormant partners’ are those people who share profits and losses and are liable to third parties for all acts of the firm. They are, however, not required to give public notice of their retirement from the firm.
3. Nominal Partner
A nominal partner is a person who lends his name to the firm, without having any real interest.
He is not entitled to share the profits of the firm. Neither does he invest in the firm nor take part in the conduct of the business. He is, however, liable to the third party for all acts of the firm.
4. Outgoing Partner
A retiring or outgoing partner is a person who leaves a firm in which the rest of the partners continue to carry on the business. Such a partner remains liable to third parties for all acts of the firm until public notice is given of his retirement. Also, if you have a private limited company, then it’s also necessary to get a Private limited company registration.
5. Partner in Profits Only
A partner who is entitled to share the profits only, without being liable for the losses, is known as the partner for profits only and is also liable to third parties for all acts of the profits only.
6. Incoming Partner
An incoming partner is a person who is admitted as a partner into an already existing firm with the consent of all the other existing partners.
Such a partner is not liable for any acts of the firm done before his admission as a partner.
7. Partner By Holding Out
A person who holds himself as a partner, or allows to do it, and is then stopped from denying the character he has assumed, is also known as a partner by holding out. It is also known as a partnership by estoppel.
Click here to know more about: Relation of Partners Under the Partnership Act, 1932
Advantages of a Partnership Firm
- It is easy to start a firm.
- Partners can mutually share the burden of all the work of the company.
- The decision will be much better with the help of the different perspectives of all the partners.
- The more partners there are, the more capital it will generate for the firm.
- The profits of the business are shared between the partners.
Disadvantages of a Partnership Firm
- The liability is unlimited; hence, all the partners are liable for all the debts and losses incurred in the firm.
- There will be disagreements and conflicts between the partners.
- In the death or insolvency of the partners, the partnership firm will be dissolved.
- There will be a lack of stability in the firm.
- The public has less confidence in the partnership firm; hence, they do not trust it.
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