Everything about Partnerships totally explained
A
partnership is a type of
business entity in which
partners (owners) share with each other the profits or losses of the business undertaking in which all have invested. Partnerships are often favored over
corporations for taxation purposes, as the partnership structure doesn't generally incur a tax on profits before it's distributed to the partners (for example there's no
dividend tax levied). However, depending on the partnership structure and the
jurisdiction in which it operates, owners of a partnership may be exposed to greater personal liability than they'd as
shareholders of a corporation.
Definition in Civil Law
» For a country-by-country listing of types of partnerships, companies, etc., see Types of business entity.
In
civil law systems, a partnership is a nominate
contract between individuals who, in a spirit of cooperation, agree to carry on an enterprise; contribute to it by combining property, knowledge or activities; and share its profit. Partners may have a
partnership agreement, or declaration of partnership and in some
jurisdictions such
agreements may be registered and available for public inspection. In many countries, a partnership is also considered to be a legal
entity, although different legal systems reach different conclusions on this point. A partnership can be formed by two or more people.
Germany
Partnerships may be formed .. in the legal forms of
General Partnership (
Offene Handelsgesellschaft, OHG) or
Limited Partnership (Kommanditgesellschaft, KG). A partnership can be formed by 2 or more people.
In the OHG, all partners are fully liable for the partnership's debts, whereas in the KG there are general partners with unlimited liability and limited partners whose liability is restricted to their fixed contributions to the partnership. Although a partnership itself isn't a legal entity, it may acquire rights and incur liabilities, acquire title to real estate and sue or be sued.
China
In mainland China, the a partnership enterprise encompasses general partnerships and limited liability partnerships. A general partnership comprises general partners who bear joint and several liabilities for the debts of the partnership enterprise. A limited liability partnership enterprise includes general partners and limited partners where the limited partners are liable only to the extent of their capital contributions.
Japan
The Japanese civil code provides for partnerships by contract, which are commonly known as or "voluntary partnerships." A more recent statute has allowed for the creation of
limited liability partnerships.
One form of partnership unique to Japan is the
tokumei kumiai or "anonymous partnership," in which partners have limited liability so long as they remain anonymous in their capacity as partners and don't participate in the operation of the partnership. Japanese corporate law also provides for partnership-like
corporations called
mochibun kaisha.
Common Law
Under
common law legal systems, the 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 which have developed in most countries 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.
There are two types of partners. General partners have an obligation of
strict liability to third parties injured by the Partnership. General partners may have
joint liability or
joint and several liability depending upon circumstances. The liability of limited partners is limited to their investment in the partnership.
A silent partner is one who still shares in the profits and losses of the business, but who is uninvolved in its management, and/or whose association with the business isn't publicly known.
Hong Kong
»
A partnership in Hong Kong is a business entity formed by the
Hong Kong Partnerships Ordinance
, which defines a partnership as "the relation between persons carrying on a business in common with a view of profit" and isn't a joint stock company or an incorporated company. If the business entity registers with the Registrar of Companies it takes the form of a limited partnership defined in the
Limited Partnerships Ordinance. However, if this business entity fails to register with the Registrar of Companies, then it becomes a general partnership as a default.
Australia
»
Summarising s. 5 of the
Partnership Act 1958 (Vic) (hereinafter the 'Act'), for a partnership in Australia to exist, four main criteria must be satisfied. They are:
- Valid Agreement between the parties;
- To carry on a business - this is defined in s.3 as 'any trade, occupation or profession';
- In Common - meaning there must be some mutuality of rights, interests and obligations;
- View to Profit - thus charitable organizations can't be partnerships (charities are typically incorporated associations under Associations Incorporations Act 1981 (Vic))
United Kingdom limited partnership
»
A limited partnership in the United Kingdom consists of:
one or more persons called general partners, who are liable for all debts and obligations of the firm; and
one or more persons called limited partners, who contribute a sum/sums of money as capital, or property valued at a stated amount. Limited partners are not liable for the debts and obligations of the firm beyond the amount contributed.
Limited partners may not:
draw out or receive back any part of their contributions to the partnership during its lifetime; or
take part in the management of the business or have power to bind the firm.
If they do, they become liable for all the debts and obligations of the firm up to the amount drawn out or received back or incurred while taking part in the management, as the case may be.
India
According to section 4 of the Indian Partnership Act of 1932, "Partnership is defined as the relation between two or more persons who have agreed to share the profits of business run by all or any one of them acting for all". This definition superseded the previous definition given in section 239 of Indian Contract Act 1872 as - “Partnership is the relation which subsists between persons who have agreed to combine their property, labour, skill in some business, and to share the profits thereof between them”. The 1932 definition added the concept of mutual agency.
USA
general partnership, a limited partnership or a limited liability partnership. In the absence of applicable federal law, the National Conference of Commissioners on Uniform State Laws has issued non-binding models laws (called uniform act) in which to encourage the adoption of uniformity of partnership law into the states by their respective legislatures. This includes the Uniform Partnership Act and the Uniform Limited Partnership Act. Although the federal government doesn't have specific statutory law for establishing partnerships, it has an extensive and hyperdetailed statutory scheme for the taxation of partnerships in the Internal Revenue Code. The IRC is Title 26 of the United States Code wherein Subchapter K of Chapter 1 creates tax consequences of such great scale and scope that it effective serves as a federal statutory scheme for governing partnerships.
Islamic Law
The Qirad and Mudaraba institutions in Islamic law and economic jurisprudence were the precursors to the modern limited partnership. These were developed in the medieval Islamic world, when Islamic economics flourished and when early trading companies, big businesses, contracts, bills of exchange and long-distance international trade were established.
In medieval Italy, the Qirad and Mudaraba concepts were adapted in the 10th century as the commenda,[ a limited partnership instiution which was generally used for financing maritime trade.]
Further Information
Get more info on 'Partnerships'.
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