What is a Partnership Firm?

About Partnership Firm

• A partnership firm is a business entity where two or more individuals come together to manage and operate a business.
• The partners pool their resources, knowledge, and skills to achieve common business goals.
• It is a widely preferred form of business, primarily due to its simplicity and ease of formation.
• The partnership business includes any kind of trade, occupation, and profession. 
• A partnership consists of three essential elements.
  • A partnership must be the result of an agreement between two or more individuals.
  • The agreement must be built to share the profits obtained from the business.
  • The business must be run by all or any of them representing the rest.
• All these conditions must coexist before a partnership can come into existence.
• Indian Partnership Act, 1932
  • A partnership firm in India is governed and regulated by the Indian Partnership Act, 1932.
  • The act defines partnership as a profit-sharing relation between two or more partners.
  • The duties and responsibilities of the partners, along with profit sharing, are defined in an agreement or deed known as Partnership Agreement.

There are mainly three types of partnerships, which are as follows:

• General Partnership:
  • In a general partnership, all the partners hold equal rights and participate in the decision-making and management of the firm.
  • The general partner puts his capital, skills, and labor to achieve the firm’s financial goals. 
  • In a general partnership, apartner has unlimited liability and has the right to take decisions regarding the management and operations of the firm. 
• Partnership at will:
  • Section 7 of the Indian Partnership Act, 1932, defines partnership at will as when there is no provision made between the partners for the duration of their partnership, or for the determination of their partnership.
  • There are two essential conditions for partnership at will, which are as follows:
    • There is no fixed period for the partnership to exist
    • There is no determination of the partnership.
• Particular partnership:
  • A particular partnership is formed to manage and run a particular business or venture.
  • When the particular purpose is served, the partnership can be dissolved.
  • However, the partners can continue with the said partnership by making an agreement.
  • If there is no agreement, the particular partnership is dissolved.

What is a Limited Liability Partnership (LLP)?

• An LLP is a corporate business form that provides the benefits of a partnership firm and a company.
• It is a hybrid between a company and a partnership firm as it incorporates the properties of both structures.
• LLP is a separate legal entity, and it can own properties in its own name. It alone will be liable to its liabilities.
• Partner’s liability is limited to their contribution to the LLP. Partners of an LLP are responsible only for their own actions.
• In other words, they are not liable to the outside creditors personally.