Partnership Types and Formation

Partnership Types and Formation

• Partnerships are associations of people pursuing a common business objective.
• Three types exist: partnership act 1890, limited partnership (LP) act 1907, limited liability partnership (LLP) act 2000.
• General partnerships (act 1890) have unlimited liability, meaning partners are jointly and severally liable for all business debts.
• LLPs limit liability to the amount invested.
• LPs combine aspects of both, with at least one general partner with unlimited liability and one or more limited partners with limited liability.

Partnership Act 1890

• This act provides default rules for partnerships.
• These rules are usually modified by a partnership agreement.
• Contents of the 1890 act: nature, partners' relations to others dealing with them, relations among partners, dissolution and finalization.

Partnership as an Agency Relationship

• Partnerships are considered "firms", regulated as agents of each other.
• Mutual trust and confidence amongst partners is presumed.
• A partner can enter into contracts on behalf of the firm.

Defining a Partnership

• A partnership is a relationship "between persons carrying on a business in common with a view to profit".
• This can be formed through written agreements, oral agreements, or implied conduct.
• The minimum number of partners is two.
• Partnership assets are owned by partners, unless otherwise excluded by agreement.

Partnership Formation

• Partnership formation is contractual; agreements are key. No specific formalities are required.
• Partners can use written agreements, verbal contracts, or inferred agreements from their conduct.
• Written partnership agreements are common; they clearly define roles and responsibilities.

Determining a Partnership

• Establishing if a partnership exists can be complex.
• The Partnership Act 1890 provides some guidance (Section 2).
• Joint ownership doesn't automatically create a partnership.
• Sharing gross returns doesn't create a partnership.
• Receiving profits is usually evidence of a partnership but may have alternatives explanations, like debt repayment, salary, etc.
• Factors to consider include if partners share expenses, profits and losses equally, and their management participation.

Rights and Obligations of Partners

• Default rights are outlined in Section 24 of the act (typically specified in the partnership agreement).
  • Equal sharing of profits and losses is usual.
  • Indemnification for expenses incurred during partnership business.
  • Interest on loans, not capital contributions.
  • Partner participation in management is a common aspect.
  • The right to view accounts and access them.
  • Absence of remuneration is a usual rule.

Capacity and Size

• Legal persons (corporations) and minors can be partners.
• Partnership size was formerly limited. Modern law allows for unlimited numbers.

Explore the various types of partnerships including General Partnerships, Limited Partnerships, and Limited Liability Partnerships. Learn about the Partnership Act of 1890 and how partnerships function as agency relationships. Understand the implications of liability in different partnership structures.