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Types of Partnerships

There are two factors that classify partnerships viz., duration and liability. Partnership based on duration, can be two types: 'partnership at will' & 'particular partnership'. Partnership based on liability, are of two types which include namely- 'with limited liability' and 'with unlimited liability'. These types of partnerships are described in the following sections.

  1. Classification on the Basis of Duration
    1. Partnership at Will: Partnership at Will is a type that exists at the will of the partners. It can prolong as long as the partners want and is terminated when a partner produces a notice of withdrawal from partnership to the organisation.
    2. Particular Partnership: This type of partnership is formed for the accomplishment of a particular project. It dissolves after the purpose for which it was formed is fulfilled or when the time duration expires.
Minor as a Partner

Partnership is based on legal contract among two persons who mutually agree to share the profits or losses of a business run by them. As such a minor is lacks ability to compete in order to enter into a valid contract with others, it is not possible for him to become a partner in any firm. However, a minor may be admitted to the benefits of a partnership firm with the mutual consent among all the other partners.

In this case, his liability is limited to the extent of the investment by him and in the firm. He is not eligible to actively participate in the management of the firm. Hence, a minor is entitled to share only the profits and is not obliged to share the losses. However, he can, if he wishes, inspect the accounts of the firm. The status of minor changes, when he becomes a major. In fact, after becoming a major, the minor has to make a decision on whether he can become a partner in the firm. He has to produce a public notice disclosing his decision within six months of attaining majority. Failing which, within the stipulated time, he will be considered as a full-fledged partner and will become liable to the debts of the firm to an unlimited extent, as the other active partners are.

  1. Classification on the Basis of Liability
    1. General Partnership: With respect to General Partnership, the liability of partners is unlimited and joint. The partners are entitled to enjoy the right to participate managing the activities of the firm Registration of the organisation is optional. The survival of the organisation is affected by death, lunacy, insolvency or retirement of the partners.
    2. Limited Partnership: With respect to limited partnership, the liability of at least one partner is unlimited while the rest may have limited liability. Such a partnership is never terminated with death, lunacy or insolvency of the limited partners. The limited partners are not entitled to enjoy the right of managing the activities. Registration of such partnership is mandatory. This type of partnership was not Permitted in India earlier. The permission to form partnership firms with limited liability has been granted only after introduction of New Small Enterprise Policy in 1991. The idea behind such a move has been to facilitate the partnership organisations to attract equity capital from friends and relatives of small scale organisations who were earlier hesitant to help, due to the presence of unlimited liability clause in the partnership form of business.

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