Partnership – Types and Dissolution of Partnership

Partnership

Before moving towards the types of partnership, it is so important to know the partnership definition. In partnership, probably two or more persons come together, bring some capital and skills and work together. Moreover, share the profit and loss in business as per the agreement. As compared to Sole Proprietorship, partnership has more capitals, thus it is a big form of business. You need to have a legal contract for starting your business in partnership, which will show you and yours partner rights and duties. Whenever any partner leaves the business with mutual agreement or not or even dies, the partnership ends.

More From Business Study Notes:- Advantages and Disadvantages of Partnership

Types of Partnership

Probably there are two general types of partnership, which can be seen all over the world freely.

1. General Partnership

In this type of partnership, the liability of all the partners is unlimited. This means that the creditor of the firm can release his dues in full from any one of the partners or collectively by attaching their personal property. In such types of partnership each partner has equal right to take part in the management of the partnership of the firm. On the basis of the duration of the existence of the firms, a general partnership may take any one of the following two forms.

• Partnership at Will: 

Such types of partnership are neither for an affixed period nor for a particular purpose. Partners continue the business for any length of period depending upon the will of the partners. Under section 7 of the partnership act, when no period is specified for the duration of the partnership, it is known as partnership at Will. It continues up to the time, the partners have faith in each other. Such partnership is formed to carry on a lawful business for an indefinite period. A firm can be dissolved by a partner by giving notice in writing to his fellow partners. The partnership will stand dissolved from the date of such notice.

• Particular Partnership:

When a partnership is formed for a certain undertaking or for a certain period, it is called a particular partnership. When the work is completed or the period specified expires, the partnership comes to an end. E.g. a partnership is formed for a limited period of 4 years. On the expiry of the period of 4 years, the firm would stand dissolved.

2. Limited Partnership

Under the partnership, the liability of the partners is limited to the extent of capital invested in the business. This partnership is formed for encouraging those persons who want to invest in business but do not want to take risk of unlimited liability. Limited partnership is very common in the USA and in several European countries.

Types of Partnership under Islamic Laws

According to the Muslim jurists, there are four types of partnership. Which are described are as under:-

1. Shirkat-Al-Mufavadha

In the Shirkat-al-Mufavadha type of partnership, the amount and type of capital contributed by each partner is equal. The profits or losses are also distributed equally among the partners. Each partner here is an agent as well as helper of the other partner. One of the important conditions of Shirkat-al-Mufavadha is that the partners who carry on the business shall be of equal status. There is written agreement among the partners for the equally in sharing profit or loss. Each partner has the right to negotiate, enter into contract, purchase, and sell goods in the market.

2. Shirkat-Al-Anan

In such types of partnership, the capital contributed by the partners is not equal. One of the partners is the major contributor of financial resources. The profit or loss is divided on the basis of capital invested in the business. There is also no compulsion for the partners to be of equal status. This type of partnership can be formed between or among the free and slave persons, Muslims and non-Muslims, masters and servants, men and women. Here the liability of each partner is limited to the amount he has paid in the business. No partner has the right to lend anything out of the joint assets of the firm.

3. Shirkat-Al-Sanai

This form of partnership is also called Shirkat-al-Taqqabal. It is an association of different skills involved in the operation of a business. The technicians, the artists, the labourer, the capitalists etc, join together in the carrying out business. The profit is distributed among the partners according to the terms of agreement among them. It is not necessary that all the partners are paid equally. A person with a better skill shares higher profit than non-technical persons. The profit in fact is distributed according to the amount and quality of work put into the business.

4. Shirkat-Al-Wajooh

In such types of partnership, the persons with high integrity, honesty and reputation join together for carrying on a business on loaned capital alone. They on the basis of high credit rating get loans and start the business. The profit of loss is shared among the partners on an equal basis.

Termination/Dissolution of Partnership

In all the above four types of partnership stated above, the partner has the right to terminate the contract by giving due notice to the other partners. Partnership is also terminated on the death of a partner. However, if the descendants of the deceased wish to continue as partners in the business, they can renew the contract.