What is Partnership Firm?

The Indian Partnership Act 1932 governs all aspects and functions of the partnership in India. According to this law, a partnership is an association of two or more individuals or parties who have agreed to share the profits created by the business under the supervision of all members or on behalf of other members.

The following are a few characteristics of a partnership:

1. Agreement: An agreement or a contract between partners creates a partnership, which is an arrangement of two or more individuals. The agreement (accord) serves as the foundation for the partnership between the partners. This type of agreement is written down. An oral agreement is legally binding on both parties. It is always preferable if the partners have a copy of the written agreement in order to avoid misunderstandings.

2.Two or More People: To form a partnership, there must be at least two (2) people who share a shared aim. To put it another way, the bare minimum of partners in a business can be two (2). However, the maximum number of persons they can have is limited.

3.Profit Sharing: Another important aspect of a partnership is the agreement between partners to share the profits and losses of a trading firm. The Partnership Act, on the other hand, defines partnership as a group of people who have agreed to share the profits of a firm, with the sharing of losses implicit. As a result, it is critical to share profits and losses.

4.Profit Motivation: It is critical for a company to operate in some capacity and to have a profit motive.

5.Joint Business: The partners are both the owners and the agents of their company. Any action taken by one partner might have an impact on the other partners and the firm. This point, it may be stated, serves as a partnership test for all partners.

6.Unlimited Liability: Every member in a partnership is personally liable in an unlimited amount. Types of Collaborations Depending on the state and location of the firm, numerous forms of partnerships exist. The three most prevalent types of partnerships are described in general terms below.

Incorporated Partnership

A general partnership is made up of two or more proprietors who work together to run a business. Each partner in this partnership has an equal right to represent the firm. All partners have the right to control the firm and can participate in management operations and decision-making. Profits, debts, and liabilities are all shared and split in the same way.

In other words, the general partnership definition can be characterised as those partnerships in which management and decision-making rights and duties are shared equally. Each spouse should assume complete responsibility for the other’s debts and liabilities. If one of the partners is sued, all of the other partners are held liable. The personal assets of the partner will be held by a creditor or the court. As a result, the majority of partners do not choose this alliance.

Limited Liability Corporation

Both general and limited partners are included in this partnership. The general partner has unlimited responsibility and is in charge of the company as well as the other limited partners. Limited partners have a small amount of power over the company (limited to his investment). They are not involved in the company’s day-to-day activities.
The limited partners typically invest and receive a profit share in the majority of cases. They are uninterested in becoming involved in management or decision-making. Due to their lack of involvement, they are unable to deduct partnership losses from their taxable income.

Limited Liability Corporation (LLC)

All partners in a Limited Liability Partnership (LLP) have limited liability. Each partner is protected from the legal and financial faults of the other. A limited liability partnership is comparable to a Limited Liability Company (LLC), but it differs from a limited or general partnership.

Willing Collaboration

When there is no mention of a partnership firm’s expiration, it is referred to as a partnership at will. The two elements that must be met by a firm to become a Partnership at Will under section 7 of the Indian Partnership Act 1932 are:

• There should be no set end date for the cooperation agreement.
• There should be no indication of the partnership’s specific decision.

As a result, if the duration and determination are specified in the agreement, the partnership is not at will. Also, if the business had a defined expiration date at the outset, but the operation of the firm continued past that period, it would be termed a partnership at will.

1932 Indian Partnership Act

The Indian Partnership Act was formed on October 1, 1932, to monitor and manage the majority of enterprises in India that operate as partnerships. This partnership act establishes a contract between two or more people who agree to run a business jointly and split the profits.

Partnership’s Benefits:

• Easy Formation – An agreement to enter as a partner and establish a firm can be established orally or in writing.
• Large Resources — Unlike a sole proprietorship, where one individual makes every contribution, a partnership allows partners to contribute additional capital and other resources as needed.
• Flexibility – If the partners believe it is necessary to achieve the intended goal or modify circumstances, they can make any modifications.
• Risk Sharing – All losses incurred by the firm are allocated equally among the partners.
• Combination of various competencies – The partnership firm benefits from the knowledge, skill, experience, and talents of its various partners.

Example of a Partnership:

Here are a few examples of co-branding partnerships:
1.GoPro and Red Bull
2.Spotify and Uber are two of the most popular music streaming services.
3.Pinterest and Levi’s
4.Suzuki Maruti
5.Hindustan Petroleum is a company based in India.

This essay delves into the concept of ‘Partnership,’ which is particularly useful for Commerce students. Stay tuned to BYJU’S for more such fascinating innovations.

Frequently Asked Partnership Questions

Q1.What are the three different forms of partnerships?

ANS-The following are the three types of partnerships:

1.Partnership in general
2.Partnership with a limit
3.Limited-liability corporations (LLCs)

Q2.What are the five characteristics of a successful partnership?

ANS-The five characteristics of a partnership are as follows:

1.Profits and losses are shared.
2.Mutual assistance
3.Liability is limitless.
4.Business that is legal
5.Contractual agreement

Q3.What are the three drawbacks of forming a partnership?

ANS-The following are some of the drawbacks of forming a partnership:

1.Liability is limitless.
2.Conflict between partners is a possibility.
3.The partnership’s instability

Q4.What do you think the most significant aspect of a partnership is?
ANS-The most crucial aspect of a partnership is mutual agency, which asserts that each partner must act as both an agent and a principal for himself and other partners. It states that any or all of the partners must conduct business.