When the work of constructing the building is over, the partnership comes to an end. Classification of partnership on the basis of liability takes into account nature of liability of partners concerned, unlimited or limited. Based on liability, partnership may be either general or limited partnership. In general partnership, liability of all partners is unlimited. The partners have the right to participate in management of the firm and their acts are binding on each other.
Registration of partnership is optional. In case of death, insolvency or insanity of any partner, the partnership comes to an end. In the case of limited, partnership, there are two categories of partners: general partners and limited partners, also known as limited liability partners.
The main features of limited partnership are as follows:. The categorisation of partnership is done on the basis of two factors that is duration and liability:.
On the basis of duration, partnership can be divided into two categories namely; Partnership at will and Particular Partnership. On the basis of liability partnership is divided into two types namely; General Partnership and Limited Partnership. The various types of partnerships are described below:. Partnership at Will :. As the name suggests, this type of partnership exist on the will of the partners.
Consequently it comes to an end as and when one or more partners express their desire to dissolve it by giving a notice. For example, Reena and Leena friends and they share many common interests.
Therefore, when Leena extends a partnership business proposal to her, Reena is little apprehensive. So they mutually decide to start the business with the condition, that it can be terminated whenever either of the partner wishes to do so.
In certain cases, a partnership is formed for a fixed duration of time say two years, five years and so on. Also, individuals or firms get into partnership agreement for pursuing a specific project s. In both the above cases, the partnership gets automatically terminated either on the completion of the stipulated time period or completion of the project as the case may be. For example, Sara and Aryan wish to start a law firm jointly. However, Sara shares with Aryan that she has plans to go abroad after three years to peruse a masters course in law.
Therefore, their partnership can exist only for three years. The liability of partners is unlimited and joint. All partners enjoy the right to participate in the management of the firm and their acts are binding on each other as well as on the firm.
The registration of the partnership firm is not compulsory. The partnership comes to an end on the death, retirement, lunacy or insolvency of the partners. The liability of all the partners is limited, except one of them whose liability is unlimited. The partners whose liability is limited do not have the rights to manage and control the business.
Also their acts are not binding on other partners or the firm. The registration of the partnership firm is compulsory. The partnership does not get terminated on the death, lunacy, retirement or death of the partners. Classification on the Basis of Duration :. Nature — This partnership exists at the will of the partners.
Dissolution — This partnership continues as long as the partners want. It is terminated when any partner gives a notice of dissolution. Nature — This partnership is formed for a specific period or to complete a particular project like construction of a flyover. Dissolution — It is dissolved automatically when the purpose for which it was formed is fulfilled or when the period, for which it was formed, is over. Classification on the Basis of Liability :. Liability — In this partnership the liability of all partners is unlimited jointly and individually.
Right to participate — All partners have the right to participate in the management of the firm. Registration — Registration of the firm is not compulsory. Dissolution — The partnership ends with the death, lunacy, insolvency or retirement of the partner. Liability — In this partnership, the liability of at least one partner is unlimited whereas the other partners may have a limited liability.
Right to participate — The partners with limited liability do not enjoy the right to participate in the management of the firm. Dissolution — The partnership is not terminated with death, lunacy or insolvency of any partner. In a general partnership, the liability of each partner is unlimited.
An exception is made in the case of a minor partner whose liability is limited to the amount of his share in the capital and profits of the firm.
In India all partnership firms are general partnerships. Each partner of a general partnership is entitled to take active part in the management of the firm, unless otherwise decided by the other partners. In general partnership, the liabilities of all partners are unlimited. But in limited partnership, the liability of at least one partner should be limited. It is mandatory to register such partnership.
This form of partnership did not exist in India earlier. LLP is an alternative corporate business form that gives the benefits of limited liability of a company and the flexibility of a partnership.
The LLP can continue its existence irrespective of changes in partners. It is capable of entering into contracts and holding property in its own name. The LLP is a separate legal entity, is liable to the full extent of its assets but liability of the partners is limited to their agreed contribution in the LLP.
Mutual rights and duties of the partners within a LLP are governed by an agreement between the partners or between the partners and the LLP as the case may be. The LLP, however, is not relieved of the liability for its other obligations as a separate entity.
It is a partnership formed for an indefinite period. The time period or the purpose of the firm is not mentioned at the time of its formation. It can continue for any length of time depending upon the will of the partners. It can be dissolved by any partner by giving a notice to the other partners of his desire to quit the firm. It is a partnership formed for a specific time period or to achieve a specified objective. It is automatically dissolved on the expiry of the specified period or on the completion of the specific purpose for which it was formed.
On the basis of the nature of agreement among its partners, we can distinguish among the following three kinds of partnerships:. Partnership at will — A partnership-at-will is one for which no fixed term has been agreed. Any partnership may end at any time provided that notice of the intention to do so is given to all the other partners in time.
Partnership for a fixed period — Such a partnership is formed for a certain fixed time period such as 2 to 5 years. It may terminate immediately after the expiry of the specified period, if not renewed for another period. It comes to an end automatically as soon as project is completed. The greatest disadvantage of partnership, like that of the one-person business is the fact that the liability of the partners is unlimited and they are all fully liable for the acts of the other partners.
There are, however, some limited partnerships which have to be registered with the Registrar of Companies. In such firms some partners e. However, at least one of the partners must have unlimited liability. In short, while general partners are fully liable for the debts of their companies, limited partners are liable only to the extent of their investment. A special partner can withdraw from the partnership any time he likes without facing any hindrance.
And, death, insolvency or incapacity of a special partner does not lead to the end of a partnership firm. A limited liability partnership LLP is a firm which consisting of both general and limited partners and some categories of business partnership can claim limited liability in a similar fashion to that enjoyed by limited companies.
This comparatively new form of organisation originated in India after the passing of the Limited Liability Partnership Act And it seeks to combine the benefits of limited liability and the flexibility of internal structure of partnership on the basis of agreement. LLP also combines the traditional partnership with unlimited personal liability, and governance structure of the limited liability joint stock company, based on the Companies Act Through this refined and modified form of business it becomes possible to ensure that professional expertise and entrepreneurial zeal, ability and initiative to join hands and carry on business operate in an efficient and flexible manner.
It is possible that an LLP will be subject to tax rules that would not normally apply to a partnership. The reason for this is that LLPs have certain characteristics that are not commonly found with other partnerships. This means these entities can take advantage of pass-through taxation rules , meaning business profits are taxed on partner's personal returns instead of the business being taxed directly. If you're interested in forming a limited liability partnership and already have an existing partnership in place, you will not need to make any alterations to your partnership agreement.
You can, however, modify your partnership agreement if you so desire. The only thing you need to do to establish your LLP is to file an application with your state. When registering your partnership, you will need the name of your partnership and your principal business location. Some states may require additional information:. Personal injury law firms commonly make use of this type of business partnership. Other businesses that can benefit from forming a limited liability partnership include:.
Each partner has equal management rights and is an agent for the business. Only the LLP is liable for business obligations. All partners are liable for their own tortious conduct and for those they supervise. To form a general partnership at common law, nothing more than an agreement between two people is needed. Typically, most people put this into a written agreement for legal and operational purposes.
To form any other partnership you must file paperwork to register your business with the state, generally done through the Secretary of State's office. Additionally, you will need to establish and register a business name along with complying with all state regulations. One of the most important factors to consider is whether or not forming a partnership will be more beneficial than establishing a limited liability company LLC.
Recently, LLCs have overtaken general and limited partnerships as the most popular business structure. The main reason for this is that LLCs offer much stronger liability protections than partnerships and are also much easier to run. For example, in a limited partnership, at least one partner must remain a general partner and this partner will be exposed to liability.
No such requirement exists for an LLC. With an LLC, none of the company members need to take place in the day-to-day operations of the business. Instead, members of the LLC can hire an outside manager to run the company. You may see that some business names have the word "limited" in them, like a limited partnership, limited liability partnership, or limited liability company LLC. The use of this word means that some owners have limited liability personally against lawsuits and debts.
A partner who has limited liability is only liable for their investment in the partnership. For example, if a partnership declares bankruptcy , the limited partners must pay only the amount of their investment. General partners are similar to sole proprietors in terms of liability. In both cases, the owners are not separate from the business in terms of liability for the debts of the business and for their actions.
That is, they have full liability. That's why new partnership types are often set up as limited partnerships of some type, or to form partnerships with limited partners, to limit the liability of one partner for the actions of other partners. Limited liability companies LLCs with more than one member owner are taxed like partnerships and they operate in similar ways. The advantage of an LLC over a general partnership is in the limited liability of all owners.
A general partnership is a partnership with only general partners. Each general partner must actively participate in managing the business and any partner may sign a contract on behalf of the partnership. The partners must agree to major decisions, acting as a corporate board of directors. Advantage: Each partner can act independently, and each can invest in different types of capital.
This partnership type also has low startup costs and few formalities. Disadvantage: A general partnership operates as a sole proprietorship , with no separation between the partners and the business. Because general partners actively participate, their liability is not limited, as described above. If one partner is sued, all partners are held liable. A partner's personal assets may be taken by a court or creditor.
A limited partnership includes both general partners and at least one limited partner. In many cases, there is one general partner who manages the business and a number of limited partners. A limited partner does not participate in the day-to-day management of the partnership and their liability is limited to their investment in the business. Advantage: The limited partners are merely investors who don't want to participate in the partnership other than to provide capital and to receive a share of the profits.
You may want to use the limited partnership option to form a partnership, for example, with relatives or friends who just want to invest. Disadvantage: Because limited partners don't participate in management , they are considered passive investors. This means they can only take losses up to the amount of their income for the year. A limited liability partnership LLP is different from a limited partnership or a general partnership but is closer to a limited liability company LLC.
In the LLP, all partners have limited liability. LLP's are often formed by groups of professionals who want to pool their resources and save money by sharing space. Advantage: Unlike the limited partnership, general partners in an LLP have limited liability.
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