QS Study

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’. 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. Registration of the firm is optional. The existence of the firm is affected 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. 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 partnership is compulsory.