A partnership is a type of business entity in which partners share with each other the profits
or losses of the business undertaking in which all have invested.
A partnership is also considered to be a legal entity, although different legal systems reach
different conclusions on this point.
FORMS OF PARTNERSHIP
The most basic form of partnership is a general partnership, in which all partners
manage the business and are personally liable for its debts.
Two other forms are the limited partnership (LP), in which certain "limited partners"
relinquish their ability to manage the business in exchange for limited liability for the
partnership's debts, and the limited liability partnership (LLP), in which all partners have
some degree of limited liability.
ARTICLES OF PARTNERSHIP
It is a voluntary contract between two or among more than two persons to place their
capital, labor, and skills in business with the understanding that there will be a sharing of
the profits and losses between/among partners.
PRINCIPAL COMPONENTS OF ARTICLES OF PARTNERSHIP
Names of included parties - includes all names of people participating in this contract
Commencement of partnership- includes when the partnership should begin. The date of
the contract is assumed as this date, if none is given.
Duration of partnership - includes how long the partnership should last. It is
automatically assumed that the death of one of the contracting parties breaks the
contract, unless otherwise stated.
Business to be done - includes exactly what will be done in this partnership. This section
should be very particular to avoid confusion and loopholes.
Name of firm - includes the name of the business entity.
Initial investments - includes how much each partner will invest immediately or by
Division of profits and losses - includes what percentages of profits and losses each
partner will receive. If it is not a limited partnership, then there is unlimited liability (each
partner is responsible for all partners' debts, including their own).
Ending of the business - includes what happens when the business winds down. Usually
this includes three parts: 1) All assets are turned into cash and divided among the
members in a certain proportion; 2) one partner may purchase the others' shares at their
value; 3) all property is divided among the members in their proper proportions.
Date of writing - includes simply the date that the contract was written.
COMMON COMPONENTS OF ARTICLES OF PARTNERSHIP
Leadership - includes the granting of one partner the rights to manage and
administer the business or a specific department.
Majority management - includes the authorization of a majority of partners to
manage the affairs of the entire partnership. This is particularly common where
there are numerous partners.
Annual account - includes provisions to account for, annually, the property and
debts of the business.
Consistent interest - includes the forbidding of any partner to carry out business
unrelated to the partnership. This is usually implied in articles of partnership.
Misconduct expulsion - includes the allowance of expelling partners who
commit gross misconduct or becomes insolvent, bankrupt, etc. This is
particularly common where there are numerous partners.
Resolution of dispute - includes the submission of arguments to arbitration.
In the commercial and legal parlance of most countries, a General
partnership or simply a Partnership refers to an association of persons or an
unincorporated company with the following major main features:
• Formed by two or more persons
• The owners are all liable for legal actions and debts the company may face
• Created by agreement, proof of existence
A limited partnership is a form of partnership similar to a general
partnership, except that in addition to one or more general partners (GPs), there
are one or more limited partners (LPs).
the LPs have limited liability, i.e. they are only liable on debts incurred by the firm to
the extent of their registered investment, and they have no management authority.
The GPs pay the LPs the equivalent of a dividend on their investment, the nature
and extent of which is usually defined in the partnership agreement.
Limited partnerships are distinct from limited liability partnerships, in which all
partners have limited liability.
• For the most part, the partners own the business assets together and are personally liable
for business debts.
• Profits are shared equally amongst the partners. A partnership agreement, however, will
usually provide for the manner in which profits and losses are to be shared.
• Each Partner is, jointly and severally, personally liable for debts and taxes of the
• Each general partner is deemed the agent of the partnership. Therefore, if that partner
was apparently carrying on partnership business, all general partners can be held liable
for his dealings with third persons.
• Each partner may be held jointly and severally liable for a co-partner's wrong doing or
tortuous act .
• Technically, a partnership terminates upon the death, disability, or withdrawal of any one
partner. However, most partnership agreements provide for these types of events with the
share of the departed partner being purchased by the remaining partners in the
• Each general partner has an equal right to participate in the management and control of
• Disagreements in the ordinary course of partnership business are decided by a majority of
• Unless otherwise provided in the partnership agreement, no one can become a member
of the partnership without the consent of all partners.
When the partnership is being constituted or the composition of the firm is changing,
LPs are generally required to file documents with the relevant state registration
office. LPs must also explicitly disclose their LP status when dealing with other
parties, so that such parties are on notice that the individual negotiating with them
carries limited liability. It is customary that the notepaper, other documentation, and
electronic materials issued to the public by the firm will carry a clear statement
identifying the legal nature of the firm and listing the partners separately as general
The limited liability enjoyed by LPs is contingent upon their refraining from taking any
active role in the management of the firm. If LPs do assume a management role,
they become GPs, and thus lose their limited liability protection and acquire the
status of an agent.
A limited liability partnership (LLP) has elements of partnerships and corporations. In
an LLP, all partners have a form of limited liability, similar to that of the shareholders
of a corporation. However, the partners have the right to manage the business
Limited liability partnerships are distinct from limited partnerships, in that limited
liability is granted to all partners, not to a subset of non-managing "limited partners."
As a result the LLP is more suited for businesses where all investors wish to take an
active role in management.