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Partnership

A partnership is an arrangement where parties, known as partners, agree to cooperate to advance their mutual interests. The partners in a partnership may be individuals, businesses, interest-based organizations, schools, governments or combinations. Organizations may partner to increase the likelihood of each achieving their mission and to amplify their reach. A partnership may result in issuing and holding equity or may be only governed by a contract.

Various partnership arrangements are possible in which all partners might share liabilities and profits equally or some partners may have limited liability. Not every partner is necessarily involved in the management and day-to-day operations of the venture, such as in the case of a "silent partner." In some jurisdictions, partnerships enjoy favorable tax treatment relative to corporations.

Partnership agreements

Although not required by law, partners should create a partnership agreement that defines the important terms of the relationship between them. Partnership agreements can be formed in the following areas:

Business:

two or more companies join forces in a joint venture[6] or a consortium to i) work on a project (e.g. industrial or research project) which would be too heavy or too risky for a single entity, ii) join forces to have a stronger position on the market, iii) comply with specific regulation (e.g. in some emerging countries, foreigners can only invest in the form of partnerships with local entrepreneurs. In this case, the alliance may be structured in a process comparable to a Mergers & Acquisitions transaction.

Politics (or geopolitics):

In what is usually called an alliance, governments may partner to achieve their national interests, sometimes against allied governments holding contrary interests, as occurred during World War II and the Cold War.

Knowledge:

In education, accrediting agencies increasingly evaluate schools, or universities, by the level and quality of their partnerships with local or international peers and a variety of other entities across societal sectors.

Individual:

Some partnerships occur at personal levels, such as when two or more individuals agree to domicile together, while other partnerships are not only personal, but private, known only to the involved parties.

Types of Partnerships

Before you start a partnership, you will need to decide what type of partnership you want.

A general partnership is composed of partners who participate in the day-to-day operations of the partnership are who have liability as owners for debts and lawsuits. There may also be limited partners

A limited partnership has one general partner who manages the business and one or more limited partners who don't participate in the operations of the partnership and who don't have liability.

A limited liability partnership is similar to the limited partnership, but it may have several general partners.

Forming a Partnership

Partnerships are usually registered with the state in which they do business, but the requirement to register varies from state to state.

Partnerships use a partnership agreement to clarify the relationship between the partners, the roles and responsibilities of the partners, and their respective shares in the profits or losses of the partnership.

It is relatively easy to form a partnership, but, as noted above, the business must be registered with the state where the partners do business. Depending on the state, you may have the choice of one or more of the types of partnerships mentioned above. Once you have registered with your state, you can then proceed to the other typical tasks in starting a business.

Requirements for Joining a Partnership

AAn individual can join a partnership at the beginning or after the partnership has been operating. The incoming partner must invest in the partnership, bringing capital (usually money) into the business and creating a capital account. The amount of the investment and other factors, like the amount of liability the partner is willing to take on, determine the new partner's investment and share of the profits (and losses) of the business each year.

Documents Required for Partnership Registration

  • Form No. 1 (Application for registration under Partnership Act)
  • Original copy of Partnership Deed, signed by all partners
  • Affidavit declaring intention to become partner
  • Rental or lease agreement of the property/campus on which the business is set

Advantages of a Partnership:

  • Businesses as partnerships do not have to pay income tax; each partner files the profits or losses of the business on his or her own personal income tax return. This way the business does not get taxed separately.
  • Easy to establish.
  • There is an increased ability to raise funds when there is more than one owner
  • Wider pool of knowledge, skills, and contacts.
  • Improved management with more than one owner.

FAQs

A partnership firm is a business structure in which two or more individuals manage and operate a business in accordance with the terms and objectives set out in a Partnership Deed that may or may not be registered. In such a business, the members are individually partners and share the liabilities as well as profits of the firm in a predetermined ratio.
A partnership firm is best for small businesses that plan to remain small. Low costs, ease of setting up and minimal compliance requirements make it a sensible option for such businesses. Registration is optional for General Partnerships. It is governed by Section 4 of the Partnership Act, 1932. For larger businesses, it has lost its relevance with the introduction of the Limited Liability Partnership (LLP). This is because an LLP retains the low costs of a partnership while providing the benefit of unlimited liability, which means that partners are not personally liable for the debts of the business.
The partners in a partnership firm are the owners, and thus, are not separate entity from the firm. Any legal issues or debt incurred by the firm is the responsibility of its owners, the partners.
A partnership must have at least two partners. A partnership firm in the banking business can have up to 10 partners, while those engaged in any other business can have 20 partners. These partners can divide profits and losses equally or unequally.
No, registration of a partnership is not necessary. However, for a partner to sue another partner or the firm itself, the partnership should be registered. Moreover, for the partnership to bring any suit to court, the firm should be registered. For this reason, it is recommended that larger businesses register the partnership deed.
The deed should contain names of the partners and their addresses, the partnership name, the date of commencement of operation of the firm, any capital invested by each partner, the type of partnership and profit-sharing matrix, rules and regulations to be followed for intake of partners or removal.
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