Partnership and Its Types Essay Example for Free

Partnership and Its Types Essay A partnership arises whenever two or more people co-own a business, and share in the profits and losses of the business. Each person contributes something to the business such as ideas, money, or property though management rights and personal liability will vary. In Pakistan the partnership firms are registered under the partnership act 1932 which defines the partnership as â€Å"The relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all† There should be at least two or maximum twenty partners in a firm with the exception of banking where maximum of ten partners could make the partnership A partnership may be registered with the Registrar of Firms of an area where the office of the firm is situated or proposed to be situated. A statement in prescribed form must be delivered to the relevant Registrar stating: †¢Firm name †¢Place or principal place of business of the firm †¢Names of any other places where the firm carries on business †¢Date when each partner joined the firm †¢Names in full and permanent addresses of the partners †¢Duration of the firm †¢Foretasted statement signed and verified by each partner Types of partners Active or working partner: Such a partner contributes capital and also takes active part in the management of the firm. He bears an unlimited liability for the firms debts. He is known to outsiders. He shares profits of the firm. He is a full-fledged partner. 2. Sleeping or dormant partner: A sleeping or inactive partner simply contributes capital. He does not take active part in the management of the firm. He shares in the profits or losses of the firm. His liability for the firms debts is unlimited. He is not known to the outside world. 3. Secret partner: This type of partner contributes capital and takes active part in the management of the firms business. He shares in the profits and losses of firm and his liability is unlimited. However, his connection with the firm is not known to the outside world. 4. Limited partner: The liability of such a partner is limited to the extent of his share in the capital and profits of the firm. He is not entitled to take active part in the management of the firms business. The firm is not dissolved in the event of his death, lunacy or bankruptcy. 5. Partner in profits only: He shares in the profits of the firm but not in the losses. But his liability for the firms debts is unlimited. He is not allowed to take part in the management of the firm. Such a partner is associated for his money and goodwill. 6. Nominal: Such a partner neither contributes capital nor takes part in the management of business. He does not share in the profits or losses of the firm. He only lends his name and reputation for the benefit of the firm. He represents himself or knowingly allows himself to be represented as a partner. He becomes liable to outsiders for the debts of the firm. A nominal partner can be of two types: 7. Minor as a partner: A minor is a person who has not completed 18 years of age. A minor cannot become a partner because he is not qualified to enter into a contract. But he may be admitted to the benefits of partnership with the mutual consent of all the partners. On being so admitted, a minor becomes entitled to a share in the profits of the firm. He can inspect and copy the books of account of the firm but he cannot take active part in the firms management. His liability is limited to the extent of his share in the capital and profits of the firm. He cannot file a suit against the firm or its partners to get his share except when he wants to disassociate himself from the firm. After becoming a major, the minor must give a public notice within six months if e wants to break off his connections with the partnership firm. If he does not give such a notice within six months or if he decides to remain in the firm, he becomes liable to an unlimited extent for the debts of the firm from the date he was admitted to the benefits of partnership. He also becomes entitled to take active part in the management of the firms business. 8. Sub partner: He is a third person with whom a partner agrees to share his profits desired from the firm. He does not take part in the management of the firm. He is not liable for the firms debts.