Partnership Act 1932 – When a formal agreement between two or more people is made who agree to be the co-owners, distribute responsibilities for running an organization and share the income or losses that the business generates is known as a partnership.
All the aspects and functions of the partnership are administered under the Indian Partnership Act 1932, in India.
This act describes a partnership as an alliance between two or more individuals or parties who have agreed to share the profits generated from the business under the supervision of all the members or on behalf of other members.
Some co-branding partnership examples are Maruti Suzuki, Spotify & Uber, Hindustan petroleum, etc.
Indian partnership Act 1932
Most of the businesses in India adopt a partnership business.
Therefore, the Indian Partnership Act was established on the 1st of October 1932 to monitor and govern such partnerships.
An agreement is made between two or more people who agree to operate the business together and distribute the profits they gain from this business under this partnership act.
Few Features of Partnership
It is an alliance of two or more individuals and a partnership comes to light from an agreement or a contract. This agreement becomes the basis of the association between the partners, maybe in written form. An oral agreement is evenhandedly legitimate. It is good to have a copy of the written agreement to avoid any controversy.
Two or More Persons
There must be at least two persons suggesting a common goal in order to manifest a partnership. In other words, we can say the minimum number of partners in an enterprise can be two. Although, there is no limitation on their maximum number of people.
Sharing of Profit
Another important aspect of the partnership is the deal between partners who have to share gains and losses of a trading concern. The definition of the partnership act explains partnership as an association between people who have consented to share the gains of a business. The sharing of loss is implicit so sharing of gains and losses is crucial.
It is significant for a firm to carry out some kind of business and should have a profit gaining purpose.
The partners are the owners and agents as well of their firm. So, any act performed by one partner can impact other partners and the firm. Thus, we can conclude that this point acts as a test of partnership for all the partners.
Every partner must have unlimited liability in a partnership.
Types of partnership
A partnership has been divided into different types based on the state and where the business operates. These are some common types of partnerships.
A general partnership consists of two or more owners operating a business. Each partner represents the firm with equal rights in this partnership and all partners can participate in decision making and management activities. They all have the right to control the business. Same as profits, debts and liabilities are equally shared and divided equally.
A general partnership can be stated as a partnership where rights and responsibilities are shared equally in terms of decision making and management. Each partner has to take full responsibility for the debts and liability incurred by the other partner.
All the other partners are considered responsible if one partner is sued. The Creditor or Court will hold the personal assets of the partner. So, most of the partners don’t opt for this partnership.
This partnership includes the general and limited partners as well. The general partner has unlimited liability. He manages the business and the other limited partners. Limited partners are not associated with the everyday operation of the firm and they have limited control over the business.
In other words, the limited partners only invest and take a profit share. They don’t participate in management or decision making. They don’t have the right to compensate the partnership losses from their income tax return.
Limited Liability partnership
All the partners have limited liability in a limited liability partnership.
In this partnership, each partner is guarded against other partners’ legal and financial mistakes. it is similar to a limited liability company but different from a liberated partnership or a General partnership
Partnership at will
This partnership can be defined as when there is no clause mentioned about the expiration of a partnership firm. A partner has to fulfil two conditions by a firm to become a partnership at will. They are:
- No particular determination of the partnership should be mentioned.
- Partnership agreements would have no fixed expiration date.
So, if the duration and determination are mentioned in the agreement then it is not a partnership at will. Also, the firm had a fixed expiry date but if the operation of the firm continues beyond the mentioned date then it will be considered as a partnership at will.