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Partnerships



A partnership is a legally binding arrangement between two or more parties to manage a business and divide profits.

There are many distinct types of partnerships. A partnership, where all members equally share in earnings and liabilities, is one kind of business where partners may have limited liability. There is also the situation known as a "silent partner," in which one party abstains from involvement in day-to-day business operations.



How Does a Partnership Operate?


In a broad sense, any endeavor that numerous individuals work on jointly is a partnership. Parties can include governments, nonprofits, corporations, or private individuals. The goals of a partnership may also be very different.

When speaking of a for-profit venture run by two or more people, the three main forms of collaborations are general partnerships, limited partnerships, and limited liability partnerships.


However, the partners are personally responsible for the debts the partnership accrues. Profits are distributed in the same proportions. The details of profit sharing will almost certainly be written out in writing in a partnership agreement.

Limited liability partnerships (LLPs) are a popular business structure for experts like accountants, lawyers, and architects. Through this agreement, partners' responsibility is restricted. As a result, other partners' assets are not put in danger, for instance, if one partner is sued for malpractice.


In some law and accounting businesses, there is also a distinction between equity partners and compensated partners. The latter has no ownership stake but is more senior than associates. Usually, they get bonuses based on how well the business does financially.

A limited partnership is an amalgamation of general partnerships and limited liability partnerships. It is necessary to have a general partner who is entirely responsible for the partnership's debts. At least one silent partner's liability is limited to the amount invested.



Characteristics and Features of a Partnership Entity:


The few characteristics of a partnership entity are as follows:

  • Compatibility between Partners:

A partnership is an organization of two or more people that results from a deal or a contract. The partnership between the partners is based on the agreement (accord). Such an arrangement is in writing. A verbal contract is legally binding. It is always advisable for the partners to have a copy of the written agreement to prevent disputes.


  • Two or More People:

A partnership must consist of at least two people who share a common objective.


  • Profit Sharing:

The agreement between partners to split profits and losses from a trading concern is another important aspect of a partnership.



Partnership Types


Depending on the state and the location of the company, there are various forms of partnerships. The most 4 integral types of partnership are highlighted below:


• Common Partnership

In common partnership, all partners can participate in management functions, make decisions, and have the power to manage the company. Profits, obligations, and liabilities are distributed and shared equally in a similar manner.


• Limited Liability Company

This sort of business entity has little to no influence on the daily business personnel. They are not involved in the business' routine activities.


• Limited Liability Company

A limited liability partnership is distinct from a limited partnership or a general partnership, yet it is essentially identical to an LLC.


• Joint Venture at Will

When there is no mention of a clause governing the firm's dissolution, the partnership is at will. The two requirements for a company to become a Partnership at Will under Section 7 of the Indian Partnership Act of 1932 are:

1. The partnership agreement shall not have a set expiration date.

2. No particular partnership decision should be highlighted.



Partners and Taxes


Although there is no official federal law that defines partnerships, the Internal Revenue Code (Chapter 1, Subchapter K) contains comprehensive guidelines on how they are taxed at the federal level.

Income tax is not paid by partnerships. However, the employees who are not recognized as a partner in the business also carries the burden of the tax liability.




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