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Home » Partnership Agreements – Types Of Partners

Partnership Agreements – Types Of Partners

By Richard Daniels Reading Time: 3 mins
Updated March 18, 2021

Partners and Partnership

A partnership agreement can be defined as “ the document in writing which is signed by all the partners in the business as well as contain all the matters governing mutual rights, duties, and liabilities of the partners in the conduct and management affairs of the partnership”. Although partnership may depend on different types of partners. 

It may also be referred to as “articles of partnership” containing the name, nature of the business, capital, duration of the firm, etc. The partnership agreement also is known as the partnership deed.

A partnership agreement on stamp paper is considered to be valid for the court against any dispute. The importance of partnership agreement can be judged from the following facts:-

  • Forms the basis of the formation of the Partnership.
  • Defines the mutual rights, duties, and liabilities of the partners.
  • Helps in minimizing the areas of disputes among the partners.
  • Serves a guidepost for the conduct of firms’ business.

Agreement for Types of Partners

The partnership agreement usually contains the following clauses:-

  • Name and location of the business.
  • Nature of the business.
  • The contribution of money of capital by every partner.
  • Provision of reinvestment in the business.
  • The duties, power and obligation of all the partners.
  • Life of business.
  • The method of distribution of profit and sharing of the losses.
  • Method of admitting new partners.
  • Procedure for withdrawal of a partner.
  • The method of valuation of goodwill.
  • The method of revaluation of assets and liabilities.
  • Procedure to be followed for the expulsion of a partner.
  • Salary payable to the partners for managing the firm.
  • The routine of preparing accounts and arrangements for audit.
  • Procedure for dissolution of the firm.
  • Operation of bank accounts

Types of Partners

There are three types of partners in a firm which are given below:-

  1. General partners.
  2. Special partners.
  3. Other partners.

General Partners

The liability of those partners in the business which are unlimited is called General partners. There are two types.

  • Active partner
  • Sleeping Partner.

Active partner: The partner in the business who is taking a practical part in the business affairs of management is called an Active partner.

Sleeping partner: The partner who has contributed his capital in the business as well as shares. Moreover, every profit and loss but not interested in the business affairs of management of a firm is called a Sleeping partner.

Special Partners

The partners who have contributed their capital in the business. However, their liability is fixed to the extent that the capital is called a Special partner. They only exist in a limited partnership.

Other Partners

The other forms of partners in a business are as given below:-

  • Secret partner.
  • Nominal partner.
  • Minor partner
  • Partner in profit.

Secret Partner: The partner who is unknown to the general public but practically taking part in the management of the business is called Secret partner.

Nominal Partner: – The partner, who can neither contribute his capital nor taking interest in the business affairs of the company. Hence, can only lend his name for goodwill and creditworthiness is called Nominal partner.

Minor Partner: – The partner who has contributed his capital in the business but his liability is fixed for a specific period to the extent of contribution is called a Minor partner.

Partner in Profit: – The partner who is receiving some part of earning profit but not liable for any losses is called a partner in profit.

Rights and Obligations of Partners

A business can be successful by putting effort in each partner individually. So, here are the few things which each partner must consider.

Rights:

  • Participate in the conduct and management of the business
  • To inspect and copy any of the books of accounts of the partnership firm
  • To be consulted and heard in all matters affecting the business
  • Have the right to share equally in the profits and losses
  • Retire from the firm with consent of all the existing partners
  • To continue unless and otherwise, he ceases to become a partner
  • Avail interest on advances paid by the partners for business purposes.

Obligations:

  • Carry on the business to the greatest common advantage
  • Faithful to each other
  • Render true accounts
  • Provide full information
  • Attend diligently to his duties
  • Share losses
  • Act within the authority
  • Indemnify for loss caused by any fraud
Author at Business Study Notes
Richard DanielsAuthor at Business Study Notes

Hello everyone! This is Richard Daniels, a full-time passionate researcher & blogger. He holds a Ph.D. degree in Economics. He loves to write about economics, e-commerce, and business-related topics for students to assist them in their studies. That's the sole purpose of Business Study Notes.
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Filed Under: Introduction to Business Tagged With: Partnership Agreement Sample, partnership deed

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