PARTNERSHIP FIRM

A formal agreement between two or more people to run a business together and split the profits is called a partnership. There are various kinds of agreements for partnership for business. Specifically, in a partnership business, partners may have limited liability, but in others, all partners share earnings and liabilities equally. Another of its kind is the so-called “silent partner,” wherein one party does not participate in the day-to-day management of the company.

TYPES OF PARTNERSHIP

Any project that several people work on together can be considered a partnership in the broadest sense. The parties could be corporations, non-profit organisations, governments, or private citizens. The objective can also differ greatly.There are three primary types in the specific context of a for-profit endeavour carried out by two or more people: limited, general, and LLPs.

1.General Partnership: All partners are equally liable financially and legally. Each participant bears personal liability for the debts that the partnership incurs. Earnings are also distributed equitably. Here the agreement will most likely have a written description of profit distribution. A agreement should have an expulsion clause that outlines the circumstances under which a partner may be removed. 2.Limited Liability Partnership Architects, attorneys, and accountants are among the professions that frequently use limited liability partnerships (LLPs). By limiting personal liability, this arrangement protects the assets of other partners in the event of, say, a malpractice lawsuit against one of the partners. There is an additional differentiation between paid partners and equity partners in certain legal and accounting businesses. Although they do not possess a share, the latter is more senior than associates. Typically, incentives are given to them based on the company’s profitability. 3.Limited Partnership A cross between general and LLPs is the limited partnership. A general partner is required, who bears complete personal obligation for the partnership’s debts. One silent partner, whose responsibility is capped at the amount invested, is at least one more. In most cases, this silent partner abstains from managing or running the partnership on a daily basis. Finally, a novel and very unusual variety is the strangely called limited liability limited partnership. This limited partnership offers its general partners a higher level of protection against liability. The Internal Revenue Code contains comprehensive guidelines on how partnerships are treated federally in taxes even though there isn’t a federal act that defines them. Income tax is not payable by partnerships. Since the partners are not regarded as employees for tax purposes, the tax obligation is passed through to them. People who form partnerships might be subject to different tax treatment than those who form corporations. In other words, both corporate profits and dividends given to owners or shareholders are subject to taxation. Contrarily, partnerships’ profits are not subject to this kind of double taxation.

PROS AND CONS OF PARTNERSHIP

By enabling partners to pool their resources and labour, a successful partnership can contribute to the success of a business. The majority of lone owners lack the time and resources necessary to manage a profitable business on their own, and starting a firm can take a lot of time. By forming a partnership, the parties can take advantage of one other’s labour, experience, and knowledge. Furthermore, a cunning partner might offer other viewpoints and ideas that can aid in the expansion of the company. However, entering a partnership carries an extra risk. The partners may also take on liability for any losses or debts incurred by the other partners in addition to splitting earnings. Additionally, there is a greater likelihood of mismanagement or conflict. It could be more difficult to come to an agreement over the sale of the company when the time comes to leave.

PROS	CONS
Partners can combine their resources, including money and labour.	Partners could have more responsibilities or debts.
Task sharing between partners promotes a better work-life balance.	Disagreement or poor management are more likely.
The firm can benefit from the experience and fresh viewpoints that more partners can offer.	The business may become more difficult to sell.

DISSOLUTION OF PARTNERSHIP FIRMS

Despite the best intentions, partnership firms may encounter situations where dissolution becomes necessary. Dissolution refers to the legal termination of a partnership, resulting in the cessation of business operations. There are several reasons why a partnership firm may dissolve, including:

1. Mutual Agreement: Partners may decide to dissolve the legal document by mutual agreement. This typically occurs when partners no longer wish to continue the business or when the partnership’s objectives have been fulfilled.
2. Expiration of Term: If the partnership deed specifies a fixed term for the association, the firm may automatically dissolve upon the expiry of that term unless renewed by mutual consent.
3. Death or Insolvency of a Partner: The death or insolvency of a partner can lead to the dissolution. In such cases, the remaining partners may choose to continue the business or opt for dissolution.
4. Misconduct or Breach of Contract: Instances of misconduct or breach of contract by one or more partners may lead to the dissolution. Legal proceedings may be initiated to dissolve the partnership and settle any disputes.

A legal structure known as a partnership enables two or more individuals to share management of a company. Along with joint ownership and profits, those partners also shoulder joint work, responsibilities, and possible losses. A well-planned partnership can lead to mismanagement and conflict, but a poorly executed one might limit the prospects for growth for a startup company.