In a populous and developing country like ours, running business is forever exciting and opportunistic. In the last decade or so, India has made rapid progress, both socially and economically giving it much needed exposure in the World to be recognized as a fast developing nation.
Being a true blue democracy adds that leverage attracting business opportunities, both domestic and international. Sole proprietorship, limited companies, corporations, joint Hindu family, partnership firms are a few types of entities at the heart of running the show. Probably, the most fragile and sensitive of all the business entities is running a partnership firm.
The Indian Partnership Act, 1932 defines partnership as ‘The relation between persons who have agreed to share profits of the business carried on by all or any of them acting for all’. A person needn’t be an individual only. It can include a registered company, a firm etc.
Types Of Partnerships In India
General: In this type of partnership, the liability factor of all the partners is limited which simply transpires that in case of extreme debt conditions where the firm is unable to pay off the debts, the creditors can realise by attaching personal assets of the partners.
Here, the partners can conduct the business jointly or one of them acting on behalf of all. There is no limit of period of operation. It can be for an indefinite or specific period as decided by the partners.
Depending on certain specific factors above, General partnership can be further split into two.
Partnership at Will: Where the duration or tenure of partnership is not specified. As long as all partners are willing and conduct business jointly, the show runs. If majority of partners decide in unison, the association or incumbents share can be dissolved.
Particular Partnership: Here, as the name suggests, partners come together for a specific business that is time bound and temporary. The partners wind up after completion of the project of after expiry of a specific time period.
Now that we’ve discussed various types of partnerships, let us throw some light on types of partners in a partnership agreement in India.
Types Of Partners
Also known as working partner, an active partner not only invests capital but also actively takes part in managing day to day business of the firm. He dedicates most of his efforts and time in upbringing the firm and is one at the helm of business.
A representing partner who acts as an agent on behalf of other partners in the association. He is the designated face of the business concern. Though his powers and liability is as good as other partners, he is entrusted with the responsibility to supervise and make decisions with regard to managing the nitty gritty.
An inactive or a dormant partner is one who contributes capital and also shares profits with unlimited liability but does not take active part in managing the firm. His interests are limited when it comes to daily affairs of business.
Legally speaking, only a person above the age of 18 can enter into contracts and partnership agreements. In some special cases and with mutual consent of all the partners a minor may be admitted as a partner whose liability is nil. The minor can only share the profits. After attaining majority, he can be treated on par with other major partners if he chooses to continue as partner.
A partner who is nominated to the partnership association to increase the reputation of the firm. A nominated partner lends his goodwill and is compensated. He does not invest capital nor does he share profits or losses unless mutually decided by the active partners.
Registration Of A Partnership Firm
Partnership agreements are governed by Partnership Act of 1932. A partnership agreement can be oral or in the form of a document. For the purpose of fulfilment of registration, a neatly laid out document is a requisite. Although, registration is not mandatory under the law, doing so will only benefit you in getting rightful remedy in case of a legal tangle or any other issues arising out of business operations.
Lets us list out some of the rights of that may be denied if your association is not registered.
Your right(partnership firm) under the contract cannot be enforced by the court against the third party if your firm is not registered.
If there is a dispute between the partners, a legal remedy cannot be sought in courts.
Therefore, we strongly advise you for registering your partnership association to be free from legal hassles in the future.
The registration rules are provided under section 58 of the act.
Though the partnership association can be registered at any time, we recommend that registration is done right at the inception. The deed should be registered with the Registrar in your area. The following details and documents are required at the time of registration along with the application form and prescribed fee. All partners need to verify the details in the application and sign it.
Name of the firm
Names and address of partners
Dates of partners joining the firm
Duration of the firm
Principal place of business
Names of other places where the firm intends to conduct business
The application form along with the required documents can be submitted directly or via authorised agents.
Dissolution Of Partnership Firm
As per Section 40 of the Act, “Firm can be dissolved with consent of all the partners or according to contract between the partners”.
In many instances, specially in case of particular partnership, dissolution if the firm is inevitable. Section 39 of the Indian Partnership Act, provides that “the dissolution of the partnership between all the partners of a firm is called the dissolution of a firm.”
We need to decode here a bit. We’re talking of dissolution of the firm established by partners jointly. There is a difference between dissolution of partnership and dissolution the firm. A partner in the firm may exit by way of retirement, death, ill health or other reasons. Such cases relate to dissolution of the partnership and not the firm. The other partners may continue to jointly operate the business.This does not resort to dissolution of the firm. As per the Partnership Act, 1932, dissolution of a partnership firm can take place in the following ways.