A partnership is a voluntary association of two or more persons who agree to carry on some business jointly and share its profits and losses. They combine their funds and skills to carry on business together.
Types of partnership
There are mainly four types of partnership which are as follows:
1. General Partnership: In a general partnership, the liability of each partner is unlimited. It means if the firm’s assets are inadequate to pay off the debts, the creditors can realize the debts by attaching the personal property of partners. an exception is made in 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 normally all partnership firms are general partnerships.
2. Limited Liability Partnership: (LLP): Limited liability partnership is now allowed in India under the Limited Liability Partnership Act, 2008. The main characteristics of a limited liability partnership are as follows:
a) A limited liability partnership must be registered under the Act with a minimum of two partners. There is no limit on the maximum number of partners.
b) An LLP is a body corporate having a separate legal entity and perpetual succession.
c) In an LLP the liability of partners is limited to their agreed contributions to the LLP. No partner would be liable on account of any unauthorized or independent actions of other partners.
d) An LLP must maintain annual accounts reflecting the true and fair view of its state of affairs.
e) The liability of partners and the firm would become unlimited in case the firm or its partners carry out any act with the intention to defraud the creditors or any fraudulent purpose.
Therefore, LLP is a hybrid form of a business organization combining features of both partnership firm and joint-stock company.
Advantages of LLP
1. An LLP is a separate legal entity independent of the partners. It is capable of owing and holding property in its own name.
2. It is much more stable than a general partnership because it is not dissolved by the retirement, insolvency, death, etc. of a partner. It enjoys perpetual existence.
3. The liability of partners in LLP is limited, they have not to take the unlimited risk.
As there is no limit on the number of partners, an LLP can raise huge funds for the expansion and growth of the business.
Disadvantages of LLP
1. It has to be registered under the LLP Act. It has to spend time and money on the documents and formalities of incorporation.
2. There is less secrecy of business affairs as it has to fulfill legal requirements.
3. The credit standing of an LLP is reduced due to the limited liability of partners.
3.Partnership at will: This type of partnership is 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 be continued for a length of time depending upon the will of the partners. It can be dissolved by any partner by giving notice to the partners of his desire to quit the firm.
4. Particular partnership: It is a partnership 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.