Partnership Firm

What Are The Different Types Of Partnership Firms In India?

calendar09 Jan, 2023
timeReading Time: 5 Minutes
What Are The Different Types Of Partnership Firms In India?

When we plan to incorporate a business or expand the existing one, we have to take an important decision here, regarding the selection of the form of the organisation. Some common forms of incorporating a business are Limited Liability Partnership, Partnership, Cooperative Society, Joint Stock Company, etc. In this article, we will talk about different types of Partnership Firms in India.

A partnership structure represents a mid-point between a corporate vehicle and a collaboration agreement. As per the law, a partnership can be defined as the association of two or more people to carry on a business to earn business. All the partners are co-jointly responsible for all the activities of a partnership.  

Before joining hands to form a partnership, knowing how all partners will align is very important. The secret behind the success of every partnership agreement is rooted in the trust and respect between the partners. The vision and mission regarding the business activities must be the same for all partners.

Partnership Act of 1932- An Overview

  • Meaning Of Partnership Firm

A firm or a business incorporated by two or more people to earn profits that company is known as a partnership firm. The partnership is constituted by a contract between the parties; that contract is known as the partnership deed. The Partnership Act of 1932 governs all the provisions related to partnership, be it dissolution or registration. 

Partnership firms acquire the following feature:

  1. Agreement between the parties
  2. Two or more person
  3. Partners have the unlimited liability
  4. Profit sharing between the partners

The concept of partnership has been around us for quite some time. Earlier, two or more people used to come together and work for mutual benefits. But today’s modern partnership is totally different from that of 20 years ago. Many people are adopting partnerships to incorporate their businesses. To govern such partnerships in India, the central government enacted the Partnership Act of 1932. Some important sections under the act which are essential to know before incorporating a partnership firm. The sections are as follows:

Chapter 2- Nature of the partnership

  • Section 2 of the act talks about the general definition 
  • Section 4 of the act talks about the Indian partnership, partners of the firm, firm and firm name.
  • Section 6 of the act talks about the mode for determining the existence of a partnership
  • Section 7 of the act talks about the partnership at will
  • Section 8 of the act talks about the particular partnership
  • Section 9 of the act talks about the general duties of the partner
  • Section 17 of the act talks about the rights of the partner
  • Section 25 of the act talks about the liability of the partner for the acts of the firm
  • Section 26 of the act talks about the liability of firm for wrongful acts of a partner.

Chapter 5 – Incoming and outgoing partners.

  • Section 31 of the act talks about the introduction of a partner in the firm 
  • Section 32 of the act talks about the retirement of a partner from the firm
  • Section 33 of the act talks about the expulsion of a partner
  • Section 34 of the act talks about the insolvency of a partner

Chapter 6 – Dissolution of a firm

  • Section 39 of the act talks about the dissolution of a firm
  • Section 40 of the act talks about the dissolution by agreement
  • Section 41 of the act talks about the compulsory dissolution

Chapter 7 – Registration of firm

  • Section 57 of the act talks about the registrar application
  • Section 58 of the act talks about the application of registration
  • Section 59 of the act talks about the registration of firm

What Are The Essentials Of Partnership Firms?

Section 4 of the Indian Partnership Act provides the essentials of partnership firms. It is also known as the test of true partnership, and the essentials are as follows:

  • There must be an agreement to incorporate a partnership firm.
  • Partnership must be organised to constitute a business.
  • There must be an agreement to share the business’s profit between the partners.
  • The business must be carried out by all or one acting for all.

Types of Partnership Firms in India

A partnership firm can be incorporated on the basis of partnership deed or contract. When the partners sign such deed or contract it officiates the establishment of the firm.  The registration helps all the partners to enjoy rights mentioned under the act.

The Partnership Act talks about different types of partnership firms, that we will be discussing below.

  1. General Partnership (Under Partnership Act of 1932)
    • Partnership at will
    • Partnership for particular period
    • Partnership for a particular venture
  2. Limited Liability Partnership (Under Limited Liability Partnership Act of 2008)

The above categorisation is explained below:

General Partnership (Under Partnership Act of 1932)

In case of general partnership, the liability of each partner will be unlimited. This means when the time comes to pay off the debt of the creditors, the partners have to attach their personal properties to pay off the debt.

Partnership at Will

Generally, a partnership firm is incorporated, and it is the partner who decides when they want this partnership to exist. If simply put, partners generally determine the time until they want the partnership to exist. But there are some cases where partners incorporate the firm without determining a specific date; this situation is known as a partnership at will. Therefore the time period for dissolution is also not mentioned under the partnership deed.

As the name suggests, these partnership firms are based on the will of the partners, and they can be brought to an end whenever a partner wants by serving a notice for the same.

As per the Section 7 of the Partnership Act of 1932[1], all the partnerships at will have to follow two conditions before incorporating it. These conditions are:

  • While making the partnership deed, the partners should not agree on the fixed date for the existence of the partnership firm.
  • There should be no provisions in the deed regarding the determination of a partnership

Partnership for the Fixed Period

In case of a partnership for a particular period, partners come together to carry out a specific project. Such partnerships are created for a temporary period or contract based work or specific business only. So as soon as the objective is achieved the partnership gets dissolved. However there can be a case where partners agreed to continue the firm even after expiration of the duration.

For example: Partnership firm incorporated for constructing a mall or a building.

Limited Liability Partnership (Under Limited Liability Partnership Act of 2008)

LLPs, also known as Limited Liability Partnerships, are a type of modern corporation. It is a hybrid form that combines elements of a company and a partnership (i.e. limited liability with flexibility). All the provisions of Limited liability partnerships are governed and regulated under the Limited Liability Partnership Act of 2008 and it’s implementing rules, referred to as the Limited Liability Rules of 2009.

What Is The Process To Register A Partnership Firm?

Section 58 and Section 59 of the Partnership Act of 1932 underlines the process to register partnership firms. The process is as follows:

  • First step is to select a name for the partnership firm.

(Note: There are few points to be kept in mind before selecting a name for the firm. The name should not be copied or too similar to the existing firms doing the business. Also, it should not contain words that show approval of the government.)

  • In the second step, the applicant has to file the application form in a prescribed manner to the Registrar of the Companies.
  • In the third step, Registrar will examine the application form and the documents submitted with it. If the registrar is satisfied, he will register the name of the firm and issue the registering certificate to the applicant.

Conclusion

The Partnership Act plays a vital role in governing Indian partnership firms. A partnership is the most important form of business organisation, and it is growing rapidly in India. Therefore to govern all the functions arising out of a partnership, the Central Government enacted the Partnership Act of 1932, which substituted the Section 239 to Section 266 under chapter 11 of the Indian Contract Act of 1872.

A partnership is a mutual agreement between two or more parties having similar interests. A partnership firm is incorporated by two or more people who come together to share ownership, the responsibilities for managing the company, and the income or losses. Such firms are most suitable for a comparatively small business such as retail and wholesale trade, professional services, medium-sized mercantile houses and small manufacturing units. Generally, it is seen that many organisations are initially started as partnership firms and later, when it is economically viable and financially attractive for the investors, it is converted into a company. A partnership deed is a key ingredient for the smooth functioning of a partnership. It also brings out the agenda and motives.

Read Our Article: How To Get A Partnership Firm Registered In India?

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