Kinds of Partnership

1. KINDS OF PARTNERSHIP

2. General partnership
• In a general partnership, the liability of each partner is
unlimited. It means that the firm's creditors can realise
their dues in full from any of the partners by attaching
their personal property if the firm's assets are found to
be inadequate to pay off its debts.
• 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.

3. Limited partnership
• A limited partnership is a partnership consisting of some partners whose liability is limited to the
amount of capital contributed by each. The personal property of a limited partner is not liable for
the firm's debts.
• He cannot take part in the management of the firm. His retirement, insolvency, lunacy or death
does not cause dissolution of the firm. There is at least one partner having unlimited liability. A
limited partnership must be registered.
• Limited partnership is now allowed in India under the Limited Liability Partnership Act. In England
limited partnership can be formed under the Limited Partnership Act, 1907 and in the USA under
the Partnership Act, 1890
• The chief characteristics of a limited partnership are as follows:
• 1. There must be at least one partner with unlimited liability. The liability of the remaining partners
is limited to their capitals in the firm. Thus, a limited partnership consists of two types of partners,
general partner and limited partner.
• 2. The limited partner cannot take part in the management of the firm. He has no implied authority
to represent and bind the firm. However, he is allowed to inspect the books of accounts of the firm.
• 3. The limited or special partner cannot assign his share to an outsider without the consent of the
general partner.
• 4. The limited partner cannot withdraw any part of his capital.
• 5. A limited partnership must be registered.

4. Advantages
• Limited partnership offers the following benefits:
• i. It enables people to invest in a business without assuming
unlimited risk and without devoting much time and attention in
management of business.
• ii. It permits the mobilisation of larger financial resources from
cautious and conservative investors.
• iii. It provides an opportunity to able and experienced persons to
manage the business without any interference from other partners.
Complete control and personal supervision help to ensure prompt
decisions and uniform actions.
• iv. It is more stable than general partnership because it is not
dissolved by the insolvency, retirement, incapacity or death of
limited partner.

5. Disadvantages
• Limited partnership suffers from the following
drawbacks:
• (i) The limited partners are deprived of the right
to manage. They remain at the mercy of the
general partner.
• (ii) The general partner may misuse his power to
exploit the limited partners.
• (iii) A limited partnership enjoys little credit
standing as the liability of some partners is
limited. It has to be registered.

6. Partnership at will
• 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.

7. Particular partnership
• 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.

8. Types of Partners

9. Active or working partner
• Such a partner contributes capital and also
takes active part in the management of the
firm. He bears an unlimited liability for the
firm's debts. He is known to outsiders. He
shares profits of the firm. He is a full-fledged
partner.

10. Sleeping or dormant partner
• A sleeping or inactive partner simply
contributes capital. He does not take active
part in the management of the firm. He shares
in the profits or losses of the firm. His liability
for the firm's debts is unlimited. He is not
known to the outside world.

11. Secret partner
• This type of partner contributes capital and
takes active part in the management of the
firm's business. He shares in the profits and
losses of firm and his liability is unlimited.
However, his connection with the firm is not
known to the outside world.

12. Limited partner
• The liability of such a partner is limited to the
extent of his share in the capital and profits of
the firm. He is not entitled to take active part
in the management of the firm's business. The
firm is not dissolved in the event of his death,
lunacy or bankruptcy.

13. Partner in profits only
• He shares in the profits of the firm but not in
the losses. But his liability for the firm's debts
is unlimited. He is not allowed to take part in
the management of the firm. Such a partner is
associated for his money and goodwill.

14. Nominal or ostensible or quasi
partner
• Such a partner neither contributes capital nor
takes part in the management of business. He
does not share in the profits or losses of the firm.
He only lends his name and reputation for the
benefit of the firm.
• He represents himself or knowingly allows
himself to be represented as a partner. He
becomes liable to outsiders for the debts of the
firm. A nominal partner can be of two types:

15. Partner by estoppels
• A person who by his words (spoken or written) or
conduct represents himself as a partner becomes liable
to those who advance money to the firm on the basis
of such representation.
• He cannot avoid the consequences of his previous act.
Suppose a rich man, Mohan, is not a partner but he
tells Sohan that he is a partner in a firm called Shipra
Enterprises.
• On this impression, Sohan sells good worth Rs. 20,000
to the firm. Later on the firm is unable to pay the
amount. Sohan can recover the amount from Mohan.
Here, Mohan is a partner by estoppels.

16. Partner by holding out
• When a person is declared as a partner and he does not
deny this even after becoming aware of it, he becomes
liable to third parties who lent money or credit to the firm
on the basis of such a declaration.
• Suppose, Shipra tells Sohan in the presence of Mohan that
Mohan is a partner in the firm of Shipra Enterprises.
• Mohan does not deny it. Later on Sohan gives a loan of Rs.
20,000 to Shipra Enterprises on the basis of the impression
that Mohan is a partner in the firm. The firm fails to repay
the loan to Sohan. Mohan is liable to pay Rs. 20,000 to
Sohan. Here, Mohan is a partner by holding out.

17. Minor as a partner
• A minor is a person who has not completed 18 years of age. A minor
cannot become a partner because he is not qualified to enter into a
contract. But he may be admitted to the benefits of partnership with the
mutual consent of all the partners.
• On being so admitted, a minor becomes entitled to a share in the profits
of the firm. He can inspect and copy the books of account of the firm but
he cannot take active part in the firm's management.
• His liability is limited to the extent of his share in the capital and profits of
the firm. He cannot file a suit against the firm or its partners to get his
share except when he wants to disassociate himself from the firm.
• After becoming a major, the minor must give a public notice within six
months if he wants to break off his connections with the partnership firm.
• If he does not give such a notice within six months or if he decides to
remain in the firm, he becomes liable to an unlimited extent for the debts
of the firm from the date he was admitted to the benefits of partnership.
He also becomes entitled to take active part in the management of the
firm's business.

18. Sub partner
• He is a third person with whom a partner
agrees to share his profits desired from the
firm. He does not take part in the
management of the firm. He is not liable for
the firm's debts.

19. Rights and Obligations of Partners
• The rights and obligations of partners are
generally laid down in the partnership deed.
In case the partnership deed does not specify
them, then the partners will have rights and
obligations prescribed in the Partnership Act.
These are given below:

20. Rights of Partners
• 1. Every partner has a right to take part in the conduct and management of the firm's
business.
• 2. Every partner has a right to be consulted and express his opinion on any matter related to
the firm. In case of difference of opinion, the decision has ordinarily to be taken by a
majority.
• But vital issues like admission of a new partner, change in the firm's business, alteration of
profit- sharing ratio, etc., must be decided by unanimous consent of all the partners.
• 3. Every partner has a right to have access to, inspect and copy any books of accounts and
records of the firm.
• 4. Every partner has the right to an equal share in the profits of the firm, unless otherwise
agreed by the partners.
• 5. Every partner has the right to receive interest on loans and advances made by him to the
firm. The rate of interest should be 6 per cent unless otherwise agreed by the partners.
• 6. Every partner has the right to be indemnified for the expenses incurred and losses sus-
tained by him in the ordinary conduct of the firm's business.
• 7. Every partner has a right to continue in the firm unless expelled in accordance with the
terms of the partnership agreement.
• 8. Every partner has a right to retire in accordance with the terms of the partnership agree-
ment or with the consent of other partners.