When two or more person make an agreement between them that they will do business on sharing basis is known as partnership. Mainly they shared business ownership.
The Content covered in this article:
1. What is Partnership: –
The Partnership is one of the type of business in which two or more persons/business 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 increasing number of partners 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 Examples: –
- Ides 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 agreement will be formed as per the guideline of the Act. This formal Agreement is known as a Partnership Deed.
If there is a Partnership Deed: –
Then all the legal proceeding will be done as per deed.
If there is a Partnership Deed is Missing: –
Then all the legal proceeding will be done as per the predefined provision in Partnership Act 1932. Some of these are shown as the following: –
|Profit/Losses Sharing Ratio||It will be treated as equal between all partners.|
|Remuneration to Partners||Not Allowed|
|Interest on loan/Advances by a partners||6% p.a. Allowed.|
|Interest on Capital||Not allowed|
|Interest on Drawing||Not allowed|
|Admission of New Partner(s)||When all partners are agreed.|
checkout all the provision of the Act from the official site of the government of India from the following link:
3. Types of Partnerships:-
There are mainly three types of partnerships business. these are shown as follows: –
- General partnerships
- Limited partnerships
- Limited Liabilities partnerships
- Joint Venture
1. General partnerships: –
In this type of partnerships, two or more persons have equal ownership of the business. All the partners have equal rights to decision making. They will be shared all profits and losses on an equal basis. All the partner are equally involved in the day to day operational activities of the business.
All partners are equally responsible for an activity which is done by any partner, It means if any partner makes fraud to other person or business, then the case will be logged to all the partners and they will be responsible of it.
In this type, the court or creditors will hold the personal assets of all the partners. That’s why most of the partner did not prefer this type.
2. Limited partnerships: –
In this type of partnerships, allowed the old partner to get a new investor for business with the condition of limited involvement into all business activities. The rights of decision making are issued on the basis of his contribution amount in the business. He/she is not associated with day to day business activities.
In most cases, This type of partners have only invested their money into the business for the share of profit and they do not want to involve 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 partnerships. It means in this type there will be the liabilities of the all partners are limited to the extent to their investment. In this type of court can not hold the personal assets of the partners. That why most of persons or businesses chose this type of partnership.
4. Joint Venture: –
In this type of Partnership, Two or more persons are getting in agreement for doing a specific work or venture. When this work or venture get complete then the partnership can be ended or can be converted into other types of partnership.
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