June 25th, 2010 | 
Author: A Partnership is a state in which two or more individuals or companies enter into a contract in order to carry on a business and equally share the profits and losses that occur during the business. Each partner is equally liable for the debts from the business. Partners are the owners of the organization and they do not pay themselves in terms of salary but share the profits. Many individuals or companies go for partnership by will, that is there is no termination contract. In this case partners can terminate business whenever they want. It depends totally on the partners will for how much time period they want to carry on the partnership business.
In partnership each individual is treated as single entity at the time of tax payment. Individual has to pay tax in accordance with the profits made by the individual. In case of limited partnership the partner is liable for any loss or debt occurred in the partnership business to an extent the individual or company has invested in the formation of business. And in limited liability partnership each partner is fully liable for the partnership debts. But if business has to suffer loss due to an illegal action of one partner the partner himself/herself is liable for the loss and the individual has to pay for it other partners will not cover for the loss.
When partnership business involves buying and selling of goods then it is known as trading partnership and when partnership business do not involve buying and selling of goods then it is known as non-trading partnership.
Types of Partnerships
In partnership business there are three types of partners first general partners each partner is equally and strictly liable to the third party. Second, limited partners liable to the extent of capital invested by them. And last, a silent partner sharing profits and losses equally but the public is not aware of their partnership with the firm or organization.
Advantages of partnership firms are that an individual doesn’t have to pay heavily in order to establish a corporation, partnership allows two or more people to work together and bring different skills and resources to the business. it is easier for partners to secure financing than a sole proprietor. If the partnership suffers a loss but the partners have other source of income the loss can be used to reduce their taxable income and thus lowering the tax payable by the partner.
Disadvantages of partnership firm are that each partner has to equally pay for the losses and are equally liable for the debts and liabilities. If partners have not entered in limited liability partnership then the loss faced by the firm due to action of one partner has to be covered by all the partners as partnership is based on each partner and is not treated as single entity. So if one partner dies the partnership has to be reestablished. And lastly there is no act that exists which sets out rules for resolving partnership differences.
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