Types of Partnership firm in India

Partnerships are businesses that are owned and operated by two or more persons, known as partners. It gives an opportunity for people to work together by pooling their tangible and intangible resources, such as finance, skill, talent, expertise, and strive towards the common goal of the business. Although the term partnership paints a certain image in the minds of people, in reality, there are several distinct types of partnerships, and each comes with its own features.

Partnerships represent businesses where two or more persons agree to participate in the profits and losses of a business by sharing them, and at times, being involved in its operations. The share of profits and losses in a business is not necessarily equal between partners. Therefore, the role and relationship of partnerships are determined by the type of partnership.

There are certain distinct types of partnerships in India:

1. Active Partner: An active partner, also known as a managing partner, is a partner who is involved in the major operational and managerial parts of the business. They may take crucial decisions in the daily functioning of the business and play an active role in the business activities. In exchange for their active and continuous participation in business functions, active partners often withdraw remuneration from the business. An active partner can only suitably retire after giving public notice in order to be detached from the liabilities of the partnership firm.
2. Sleeping Partner: A dormant or sleeping partner is one who invests resources in the form of money into the partnership but does not play any role in its daily operations or decisions. The dormant partner does not partake in the activities of the partnership but does share the profits and losses incurred by the business.
3. Nominal Partner: A nominal partner does not share in the profits or losses of a partnership since they also do not invest any capital into it. The primary purpose of appointing a nominal partner is to build an association with a famous name or personality, which would then boost the partnership’s reputation. The nominal partner does not involve themselves in the functioning or operational parts of the business. However, they are accountable for the liabilities of the decisions taken by other partners.
4. Minor Partner: A minor, that is a person below 18 years, can be appointed to enjoy the benefits of a business partnership. However, they cannot enter into a contract. They only share in the benefits and do not bear any partnership liabilities. Therefore, it is not until they reach the majority's age that they can decide whether they wish to be a partner or resign from the position.
5. Partner by Estoppel: When an individual who is not a partner of a firm presents themselves by holding out that they are a partner, they become a partner by estoppel. This happens after the representation made by the individual, followed by a third person believing it and acting on such a basis. The consequences of their representation thereby estop the self-declared partner.
6. Partners in Profits Only: These types of partnerships are ones that invest large amounts of capital and bring goodwill to the business. They are partners who only share in the business’ profits and do not share the burden of its losses. They also do not have any role to play in the operational and functional part of the business.
7. Retiring Partner: A retiring or outgoing partner is one who leaves a partnership by issuing a notice in that regard. They are responsible for the acts done in their tenure but not beyond it. However, the issuance of the public notice of retirement is mandatory to ensure relief from future liabilities.
8. Secret partner: A secret partner shares the profits and losses of a business and is also allowed to take part in its daily operations. However, the identity of the secret partner is hidden from third parties and outsiders.
9. Limited Partner: When a partner shares the liabilities of the partnership firm only to a certain limit or extent, they are called a limited partner. When all partners are of this type, they form a limited liability partnership.

The aforementioned types of partners determine each distinct relationship of partnership. However, there are other types of partnerships with different purposes, as follows:

• Particular Partnership and Partnership at Will: Particular partnerships are entered into with a specific objective through an object-bound contract. Once the objective is fulfilled, the partnership ends. In the absence of any such clause, the partners enter into a partnership at will, which lasts till their retirement.
• Fixed and Flexible Partnerships:These are partnerships on the basis of duration or tenure. If there is a specific tenure mentioned at the time of entering into the partnership, it is fixed, and in the absence of any such tenure, the partnership is flexible in nature.

Therefore, these are twelve major types of partnerships that an individual should be aware of while entering into a partnership firm or working in their association.