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What is Partnership – Meaning and Its 4 Types

What is Partnership - Meaning and Types-min
What is Partnership - Meaning and Types-min

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When two or more people agree that they will do business on a sharing basis, it is known as a partnership. Mainly they shared business ownership. 

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1. What is Partnership: –

A partnership is one type of business in which two or more persons/businesses make a formal agreement between them of sharing business ownership, profits/Losses, responsibilities and duties of the business. They also help each other in all operational activities of the business i.e. Decision-making, Forecasting, and reconstitution of partnership firm etc. 

In the Partnerships, the share of ownership will be distributed to the new partner as per the current market valuation of the business. The Market valuation includes a number of factors i.e. the market share of the product, customer loyalty and many more. 

For Example: –

  • Idea and Vodafone 
  • Reliance Jio and Facebook. 
  • Red Bull and Go Pro
  • Maruti Suzuki

2. Partnerships Act 1932:-

In India, the type of partnership business is administered with the Partnership Act 1932. All the formal agreements will be formed as per the guidelines of the Act. This formal Agreement is known as a Partnership Deed. 

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If there is a Partnership Deed: – 

Then all the legal proceedings will be done as per the deed. 

If there is a Partnership Deed is Missing: – 

Then all the legal proceedings will be done as per the predefined provision in the Partnership Act 1932. Some of these are shown as the following: –

Profit/Losses Sharing RatioIt will be treated as equal between all partners. 
Remuneration to PartnersNot Allowed
Interest on loans/Advances by a partner6% p.a. Allowed. 
Interest on Capital Not allowed 
Interest on DrawingNot allowed
Admission of New Partner(s)When all partners agreed. 

checkout all the provisions of the Act from the official site of the government of India from the following link: 

Click Here

3. Types of Partnerships:-

There are mainly three types of partnerships business. these are shown as follows: –

  1. General partnerships
  2. Limited partnerships
  3. Limited Liabilities partnerships
  4. Joint Venture

1. General partnerships: –

In this type of partnership, two or more persons have equal ownership of the business. All the partners have equal decision-making rights. They will be shared all profits and losses on an equal basis. All the partners are equally involved in the day-to-day operational activities of the business. 

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All partners are equally responsible for any activity which is done by any partner, It means if any partner commits fraud against another person or business, then the case will be logged to all the partners and they will be responsible for it.   

In this type, the court or creditors will hold the personal assets of all the partners. That’s why most of the partners did not prefer this type. 

2. Limited partnerships: –

This type of partnership, allowed the old partner to get a new investor for business with the condition of limited involvement in all business activities. The rights of decision-making are issued based on his contribution amount in the business. He/she is not associated with day-to-day business activities. 

In most cases, This type of partner has only invested their money into the business for the share of profit and they do not want to be involved in the day-to-day business activities or decision making etc. 

3. Limited Liabilities partnerships: –

This type is clear from the name of the type of partnership. It means in this type there will be the liabilities of all partners are limited to the extent of their investment. This type of court can not hold the personal assets of the partners. That is why most persons or businesses choose this type of partnership. 

4. Joint Venture: –

In this type of Partnership, Two or more persons come getting in agreement for doing a specific work or venture. When this work or venture is complete then the partnership can be ended or can be converted into other types of partnership. 

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