Types of Partnerships on the basis of Liability

Types of Partnerships on the basis of Liability

Partnerships can be classified on the basis of two factors- duration and liability. On the basis of liability, the two types of partnerships- one ‘with limited liability’ and the other one ‘with unlimited liability’. Limited partners are not involved in management. The general partners supervise the day-to-day operations of the LP. Limited partners are mainly silent investors. The general partner retains the right to control the business, while the limited partner(s) does not participate in management decisions. Both general and limited partners benefit from business profits.

These types are described in the following sections.

Classification on the basis of liability

(i) General Partnership or unlimited liability: In the general partnership, the liability of partners is unlimited and joint. The partners enjoy the right to participate in the management of the firm and their acts are binding on each other as well as on the firm. Not every partner can profit from this limitation, at least one participant must admit general partnership status, exposing him or herself to full personal liability for the business’s debts and obligations. The registration of the firm is optional. The existence of the firm is affected by the death, lunacy, insolvency or retirement of the partners.

  • In general partnership, the legal responsibility of partners is limited and joint.
  • The partner enjoys the right to participate in the management of the firm.
  • The registration of the firm is optional.
  • The existence of the firm is pretentious by the death, lunacy, insolvency or retirement of the partners.

(ii) Limited Partnership: In the limited partnership, the liability of at least one partner is unlimited whereas the rest may have limited liability. Such a partnership does not get terminated with the death, lunacy or insolvency of the limited partners. This partnership allows each partner to limit his or her personal liability to the amount of his or her business investment. The limited partners do not enjoy the right of management and their acts do not bind the firm or the other partners. Registration of such a partnership is compulsory.

  1. In a limited partnership, the liability of at least one partner is unlimited whereas the other partners may have limited liability.
  2. The limited partners do not enjoy the right to participate in the management of the firm.
  3. Registration of a firm is compulsory.
  4. Such a partnership does not get terminated with the death, lunacy or insolvency of any partner with limited liability.

Another type of Partnerships on the basis of Liability is Limited Liability Partnership:

A Limited Liability Partnership (LLP) is a partnership in which some or all partners have limited liabilities. It gives limited liability to every owner. This means that each partner is secluded from the financial and permissible mistakes of the other partners.

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