Partnership: Meaning, Characteristics, Advantages, Limitations, Limited Liability Partnership and Salient Features of the LLP Act 2008 Inter Alia (For CBSE, ICSE, IAS, NET, NRA 2022)

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Meaning of Partnership

A relation between two or more persons who have agreed to share the profits of a business carried on by all or any of them acting for all. It is known as “Partnership” .

Characteristics of Partnership Form of Business Organization

Partnership - Characteristics
  • Two or More Members: At least two members are required for business. But not exceed 10 in case of banking business and 20 in case of other business.
  • Agreement: For starting a Partnership business there must be an agreement between all of you. This agreement contains:
    • The amount of capital contributed by each partner
    • Profit or loss sharing ratio
    • Salary or commission payable to the partners, if any
    • Duration of business, if any
    • Name and address of the partners and the firm
    • Duties and powers of each partner
    • Nature and place of business
    • Any other terms and conditions to run the business
  • Lawful Business: The partners carry on any kind of Lawful business. To indulge in smuggling, black marketing etc. , cannot be called Partnership business in the eye of the law.
  • Sharing of Profit: In partnership business, the profit share between every partner in the agreed proportion. In the absence of any agreement for the profit sharing, it should be shared equally between the partners.
  • Unlimited Liability: If the assets of the firm are insufficient to meet the liabilities, the personal properties of the partners, can also be utilized to meet the firm՚s liabilities.
  • Voluntary Registration: It is not compulsory that you register your partnership Generation. The effects of non-registration are:
    • Your firm cannot take any action in a court of law against any other party for settlement of claims.
    • In case there is any dispute among partners, it is not possible to settle the settlement of claims, through a court of law.
    • Your firm cannot claim adjustments for amount payable to or receivable from any other party through a Court of law.
  • Principal Agent Relationship: All the partners of a firm have an equal right to actively participate in its management. They act as an agent of the others and at the same time the others become the principal. There exists a principal agent relationship in every partnership firm.
  • Continuity of Business: An end in the event of death, lunacy or bankruptcy of any partner in business they can take decision for discontinuous their business of any time.

Advantages of Partnership Form of Business Organization

Partnership - Advantages
  • Easy to form: A simple agreement, oral or in writing, is sufficient to create a partnership firm.
  • Availability of large resources: In partnership business may possible to pool more resources. They can contribute more capital, more efforts and also more time for the business.
  • Balanced decisions: In Partnership business, all partners can take a right decision for business.
  • Sharing of losses: In partnership business, a partner is share to its profit and loss in business.

Limitations of Partnership Form of Business Organization

Partnership - Limitations
  • Unlimited Liability: All the partners are jointly as well as individually liable for the debts of the firm to an unlimited extent.
  • Uncertain Life: It comes to an end with the death, insolvency, incapacity or the retirement of any partner and any member can also give notice at any time for dissolution of partnership.
  • Limited Capital: In partnership business the total number of partners cannot be exceed 20.
  • Non transferability of share: If you are a partner in a firm you cannot transfer your share of interest to outsiders without the consent of other partners.

Limited Liability Partnership

A corporate business vehicle that enables professional expertise and entrepreneurial initiative to combine and operate in flexible, innovative and efficient manager, providing benefits of limited liability while allowing its members the flexibility for organizing their internal structure as a partnership is called LLP.

  • The limited Liability Partnership (LLP) is viewed as an alternative corporate business vehicle that provides the benefits of limited liability but allows its members the flexibility of organizing their internal structure as a partnership based on a mutually arrived agreement.
  • Keeping in mind the need for the day, the Parliament enacted the Limited Liability Partnership Act, 2008 which received the assent of the President on 7th January, 2009.

Salient Features of the LLP Act 2008 Inter Alia

  • The LLP shall be a body corporate and a legal entity separate from its partners. Any two or more persons, associated for carrying on a lawful business with a view to profit, may by subscribing their names to an incorporation document and filing the same with the Register, form a Limited Liability Partnership.
  • LLP Act 2008 provides flexibility to devise the agreement as per their choice. In the absence of any such agreement, the mutual rights and duties shall be governed by the provisions of the LLP Act.
  • The LLP will be a separate legal entity, liable to the full exptent of its assets, with the liability of the partners being limited to their agreed contribution in the LLP. No partner would be liable on account of the independent or un-authorized actions of other partners of their misconduct. The liabilities of the LLP and partners who are found to have acted with intent to defraud creditors or for any fraudulent purpose shall be unlimited for all or any of the debts or other liabilities of the LLP.
  • Every LLP shall have at least two partners and shall also have at least two individuals as Designated Partners, of whom at least one shall be resident in India.

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