Partnership Firms in India are governed by the Indian Partnership Act, 1932. As per Section 4 of the Indian Partnership Act:-
Partnership is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all
Types of Partners in a Partnership
Depending on the type of partnership and the levels of partnership hierarchy, a partnership can have several different types of partners. This article on different types of partners explains the difference between:
- General partners and limited partners. General partners participate in managing the partnership and have liability for partnership debts. Limited partners invest but do not participate in management.
- Equity partners and salaried partners. Some partners may be paid as employees, while others have only a share in ownership.
- The different levels of partners in the partnership. These partnership types may have different duties, responsibilities, and levels of input and investment requirements.
Types of Partnerships
A general partnership involves two or more owners carrying out a business purpose. General partners share equal rights and responsibilities in connection with management of the business, and any individual partner can bind the entire group to a legal obligation. Each individual partner assumes full responsibility for all of the business's debts and obligations.
A limited partnership allows each partner to restrict his or her personal liability to the amount of his or her business investment. Not every partner can benefit from this limitation -- at least one participant must accept general partnership status, exposing himself or herself to full personal liability for the business's debts and obligations.
Limited Liability Partnerships (LLP)
Limited liability partnerships (LLP) retain the tax advantages of the general partnership form, but offer some personal liability protection to the participants. Individual partners in a limited liability partnership are not personally responsible for the wrongful acts of other partners, or for the debts or obligations of the business.
Is it necessary to register a partnership firm?
Indian Partnership Act, 1932 governs the partnerships. Registration of partnership firm is optional and at the discretion of the partners.
Registration of partnership firm may be done at any time – before starting a business or anytime during the continuation of partnership.
It is always advisable to register the firm since a registered firms enjoy special rights which aren’t available to the unregistered firms.