A partnership is an agreement where parties, known as business partners, conform to work to advance their mutual interests. People may partner to increase the likelihood of each achieving their mission and to amplify their reach. A partnership is governed by a contract known as Partnership Agreement or Partnership Deed.
Partnerships have an extensive history; they were already in use in Medieval times. In India, Partnership is governed by the Partnership Act enacted in the year 1932. A partnership is very useful where more than one person intends to carry on a business where they can pool their resources and share profit and contribute to loss arising out of such a partnership.
Characteristics of Partnership:
As per Section 4 of Partnership Act, 1932 “Partnership” is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. Persons who have entered into a partnership with each other are called on an individual basis, “partners” and jointly “a firm”, and the name under which their business is carried on is named the “firm-name”.
Benefits of Partnership:
Easy to Form:
Business Secrecy:
Two or More Persons:
Profit-Sharing:
Types of Partnership Firm
Particular Partnership:
Types of Partners:
When a partner of a partnership firm becomes a partner by an agreement, and actively participates in the conduct of the partnership, is called an active partner. The partner of the firm acts as a representative of different partners for all the acts undertaken in the usual business lifecycle of the business. In the event of the retirement of a partner, the person must give public notice to absolve himself of their liabilities for acts carried out by the other partners after his retirement.
A Sleeping or a Dormant Partner is a partner, who is a partner by agreement; who does not actively take part in the conduct of the business. These partners share their profits and losses and are liable to third parties for the business carried out by the partnership firm. However, they are not required to give public notice of their retirement from the partnership firm
A Sub-partner is a partner in a partnership firm that agrees to share his profits in a partnership firm with an outsider to the firm. A sub-partner does not hold any right against the firm neither is responsible for any debts caused by the firm.
A nominal partner is an individual who lends his name to the partnership firm. When this is carried out without having any real interest in the business, the person is a nominal partner. This kind of partner is not entitled to share the profits of the firm. This partner has neither invested in the firm nor takes part in the running of the business. Although, such a partner is liable to third parties for all the actions taken by the firm.
Partnership by holding out is also known as a partnership by estoppel. This is when an individual holds himself out as a partner or allows others to do so, the person is then stopped from denying the character he has assumed and upon the trust of which creditors may be presumed to have acted. When an individual represents himself or knowingly permits himself, to be represented as a partner in a partnership firm (when in fact he is not) he is liable, as a partner in the firm to anyone who on the trust of such representation, had given credit to the firm. An individual may themselves, by their words or conduct has induced others to believe that they are a partner or they may have allowed others to represent them a partner. The result in both situations is identical.
This is a partner who is entitled to have a share of the profits without being liable to the losses. This kind of partner is liable to third parties only for acts of the gain.
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