What Is Partnership?
Partnership is an important type of business organization which means the coming together of two or more people to form a business with the main motive of making profit.
In our previous article, we wrote about the meaning and how to write a partnership deed. In this article, we will discuss on the various types of partnership.
Types Of Partnership Business
The question "What are the different types of partnership?" is often asked by students and professional and even people learning about partnership business. Basically, there are four types of partnership but they can be categorized into two broad types, which are:
- Partnership on the basis of Duration
- Partnership on the basis of Liability
The duration here means the time period of partnership. That is, how long the parties involved will be in business together while the liability depends on the liability of all the partners when the firm no longer exists.
We are going to discuss the types of partnership in details to have enough understanding of the subject.
Partnership On The Basis Of Duration
This is mainly concerned with the duration of the company. There are two types of partnership on the basis of Duration. They are: Partnership at will and Particular Partnership.
1. Partnership at Will
This is a partnership whose existence is for an indefinite period. The period of the partnership is not mentioned at the period of its establishment. It depends on the will of all the partners Involved in the business.
Example of Partnership at Will
For instance, If 3 people agreed to start a business and continued the partnership until the will of all the partners. If all the 3 partners decide to end the agreement, then the partnership will come to an end. Partnership at will can continue for any length of time depending on the will of the partners to dissolve or continue the business. It can be dissolved at any time by any partner, but he must give a notice to other parties about his intentions to quit the firm. In this type of partnership, partners can start the business and can also end it when they choose to.
2. Particular Partnership
As the name says, it is created for a task, contract, project, etc. This partnership is formed for a specific objective and only valid until the objective of creating the partnership is accomplished. It is also called joint venture and is valid for a particular duration. It is automatically dissolved on the completion of the specific purpose for which it was formed.
Example of Particular Partnership
For instance, 3 people decided to create a society. They created a partnership before commencing the society. A partnership firm was created for that purpose but their partnership will end when the society gets completed.
Partnership By Liability
Partnership on the basis of Liability can further be categorized into 2 types. They are: General liability and Limited Liability.
1. General Liability
This type of Partnership is unlimited. I will explain this with an example. If four people started a General Liability partnership business, when it's time to settle the company's debts in the case of liquidation, the partners will pay from their own pockets. This means that the liability of all the partners will be the same and unlimited. In this kind of partnership, all partners have the right to take part in the management of the firm unless otherwise decided by the other partners. Everyone has equal rights. No one is less or more important than the other.
In general liability partnership, one partner can represent all of them. This means that one partner can take decision or sign contract for the company. Here mutual agency comes in. Wondering what is mutual agency? We got you covered.
In mutual agency, one out of all the partners can represent itself as an agent and other partners will become principal. By creating a mutual agency, any of the partners can act as an agent and take major decisions on behalf of other partners.
2. Limited Liability
In limited partnership, at least one partner must have an unlimited liability and other partners with limited liability. This means that when the business gets liquidated, the limited partners are only liable to the amount they invested in the company. This type of partnership is slightly different from any other partnerships. It is a mix of basic partnership and any other types.
Limited partners cannot be in management of the firm. You want to know why?
Let’s assume you are in partnership and you are the only person with unlimited liability, and you are aware that if the firm fails then you have to sell your personal assets to settle debts. In this scenario, will you be comfortable permitting all the partners to take part in management?
Of course No, since you are responsible for all the loss and only you will pay all the debts, manage all the things alone then you would want to make important decisions alone. So, the partners who have limited liability will not take part in management and the management will be done by a partner whose liability is unlimited.