Contents
Partnerships can be classified based on duration, liability, and registration. All these three types of partnership can also be further classified into Partnership at Will, Particular partnership, General Partnership, Limited Liability Partnership (LLP), Registered and Unregistered Partnership.
Types of Partnership – Introduction
A partnership is a business structure where two or more individuals agree to share profits and liabilities and pool their resources for mutual gain. The Indian Partnership Act, 1932, classifies partnerships into various kinds based on different parameters such as duration, liability, and registration. Understanding these classifications is essential for choosing the right business structure.
Essentials of Partnership
There are three essentials of partnership which are defined as under :-
- Agreement: There must be an agreement between partners.
- Profit Sharing: The partners share profits and losses.
- Mutual Agency: Each partner acts as an agent for others in conducting the business
Types of Partnership
Partnerships can be classified based on duration, liability, and registration :-
- Based on Duration
- Based on Liability
- Based on Registration
All these three types of partnership can also be further classified into different types of partnership which are explained under :-
1. Classification Based on Duration
- Partnership at Will (Section 7)
A partnership that does not specify any fixed duration is known as a partnership at will. It can be dissolved at the discretion of any partner by giving notice. It continues indefinitely until dissolved by any partner by giving notice.
Case Law: In Ram Kumar v. K.C. Patel (1952), it was held that a partnership without a defined term is a partnership at will and can be dissolved by notice.
ii. Particular Partnership (Section 8)
A particular partnership is formed for a specific business venture or undertaking. Once the objective of its fulfilled, the partnership dissolves unless otherwise agreed upon.
Case Law: In Dineshchandra v. State of Gujarat (2006) ruled that a partnership created for a single project automatically dissolves upon its completion.
2. Classification Based on Liability
i. General Partnership
In a general partnership, all partners have unlimited liability and can be held personally liable for the firm’s debts.
Case Law: In Jagdish Chandra Gupta v. Kajaria Traders (India) Ltd. (1964) confirmed that general partners are liable for the firm’s obligations even after dissolution unless properly settled.
ii. Limited Liability Partnership (LLP)
A limited liability partnership (LLP) limits each partner’s liability to their agreed contribution, protecting personal assets from business debts. Though LLPs are governed under the Limited Liability Partnership Act, 2008, they are relevant to modern partnership structures.
Case Law: In Innoventive Industries Ltd. v. ICICI Bank (2017) differentiated LLPs from traditional partnerships due to their limited liability structure.
3. Classification Based on Registration
i. Registered Partnership
A registered partnership is officially registered under Section 58 of the Indian Partnership Act, 1932, providing partners with legal benefits such as the ability to sue third parties.
Case Law: In Jayantilal & Co. v. M.P. Electricity Board (1969) highlighted the importance of registration in enforcing legal rights.
ii. Unregistered Partnership
An unregistered partnership lacks certain legal rights, such as the ability to file lawsuits against third parties or partners for disputes, leading to potential disadvantages in disputes.
Case Law: In Purushottam & Co. v. Manilal & Sons (1985) emphasized the disadvantages of operating unregistered firms in legal disputes.
Conclusion
The Indian Partnership Act, 1932, categorizes partnerships into different types based on duration, liability, and registration status. Understanding these types helps businesses choose the right structure to meet their needs while ensuring compliance with legal requirements. Entrepreneurs should carefully consider their partnership model to protect their interests and ensure smooth business operations.
Read More :- Law-of-Contract