A partnership is an arrangement where parties agree to cooperate to advance their mutual interests.^[1]

Since humans are social beings, partnerships between individuals, businesses, interest-based organizations, schools, governments, and varied combinations thereof, have always been and remain commonplace. In the most frequently associated instance of the term, a partnership is formed between one or more businesses in which partners (owners) co-labor to achieve and share profits and losses (see business partners). Partnerships are also common regardless of and among sectors. Non-profit, religious, and political organizations, may partner together to increase the likelihood of each achieving their mission and to amplify their reach. In what is usually called an alliance, governments may partner to achieve their national interests, sometimes against allied governments who hold contrary interests, such as occurred during World War II and the Cold War. In education, accrediting agencies increasingly evaluate schools by the level and quality of their partnerships with other schools and a variety of other entities across societal sectors. Partnerships also occur at personal levels, such as when two or more individuals agree to domicile together, while other partnerships are not only personal but private, known only to the involved parties.

Partnerships present the involved parties with special challenges that must be navigated unto agreement. Overarching goals, levels of give-and-take, areas of responsibility, lines of authority and succession, how success is evaluated and distributed, and often a variety of other factors must all be negotiated. Once agreement is reached, the partnership is typically enforceable by civil law, especially if well documented. Partners who wish to make their agreement affirmatively explicit and enforceable typically draw up Articles of Partnership. It is common for information about formally partnered entities to be made public, such as through a press release, a newspaper ad, or public records laws.

While partnerships stand to amplify mutual interests and success, some are considered ethically problematic. When a politician, for example, partners with a corporation to advance the corporation's interest in exchange for some benefit, a conflict of interest results. Outcomes for the public good may suffer. While technically legal in some jurisdictions, such practice is broadly viewed negatively or as corruption.

Governmentally recognized partnerships may enjoy special benefits in tax policies. Among developed countries, for example, business partnerships are often favored over corporations in taxation policy, since dividend taxes only occur on profits before they are distributed to the partners. 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 would as shareholders of a corporation. In such countries, partnerships are often regulated via anti-trust laws, so as to inhibit monopolistic practices and foster free market competition. Enforcement of the laws, however, is often widely variable. Domestic partnerships recognized by governments typically enjoy tax benefits, as well.

Definition in civil law[link]

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.

Germany[link]

Partnerships may be formed in forms of the General Partnership (Offene Handelsgesellschaft, OHG) or Limited Partnership (Kommanditgesellschaft, KG). A partnership can be formed by only one person. 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 is not a legal entity, it may acquire rights and incur liabilities, acquire title to real estate and sue or be sued.

China[link]

In mainland China, a partnership enterprise encompasses two types of partnerships：general partnerships and limited partnerships.^[2] A general partnership comprises general partners who bear joint and several liabilities for the debts of the partnership enterprise.^[2] There is a special general partnership which can be employed by professional service providers such as accountant firms and law firms. A limited partnership enterprise includes general partners and limited partners where the limited partners are liable only to the extent of their capital contributions.^[2]

Japan[link]

The Japanese civil code provides for partnerships by contract, which are commonly known as nin'i kumiai (任意組合^?) 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 do not participate in the operation of the partnership. Japan provides for partnership-like corporations called mochibun kaisha.

Netherlands[link]

Accountants in the Netherlands organized themselves for the first time as partnerships in 1890 when two single proprietorships bundled their efforts to form a partnership. The event was followed by numerous other events, including additional consolidation and entrepreneurship, mergers and acquisitions, internationalization regulatory and economic discontinuities that changed the sector dramatically. Partnerships differ from private and public corporations in that all partners are fully responsible for decisions made by any of the partners. A historical and organizational study of accounting partnerships in The Netherlands over the period 1890-1990 showed that partnerships benefit greatly from supplementing partners with associates ( the ratio of partners to associates refers to "leverage' and greatly impacts the partnerships survival odds, but only partners as so called residual claimants are liable for the conduct and performance of the partnership as firm). Also the heterogeneity of the partners as a group of professionals benefits from compositional effects such as homogeneity in experience and other demographic characteristics.^[3]

Common law[link]

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 is not publicly known; these partners usually provide capital.

Hong Kong[link]

A partnership in Hong Kong is a business entity formed by the Hong Kong Partnerships Ordinance,^[4] which defines a partnership as "the relation between persons carrying on a business in common with a view of profit" and is not a joint stock company or an incorporated company.^[5] If the business entity registers with the Registrar of Companies it takes the form of a limited partnership defined in the Limited Partnerships Ordinance.^[6][7] However, if this business entity fails to register with the Registrar of Companies, then it becomes a general partnership as a default.^[7]

Australia[link]

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 cannot be partnerships (charities are typically incorporated associations under Associations Incorporations Act 1981 (Vic))

Partners share profits and losses. A partnership is basically a settlement between two or more groups or firms in which profit and loss are equally divided

United Kingdom limited partnership[link]

A limited partnership in the United Kingdom consists of:

• One- twenty people (except in solicitors and banks) called general partners, who are liable for all debts and obligations of the firm; and
• One or more people 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 and Pakistan[link]

According to section 4 of the Partnership Act of 1932, which applies in both India and Pakistan, "Partnership is defined as the relation between two or more persons who have agreed to share the profits according to their ratio 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.

A partnership firm is not a legal entity apart from the partners constituting it. It has limited identity for the purpose of tax law as per section 4 of the Partnership Act of 1932.^[8]

USA[link]

The federal government of the United States does not have specific statutory law governing the establishment of partnerships. Instead, each of the fifty states as well as the District of Columbia has its own statutes and common law that govern partnerships. These states largely follow general common law principles of partnerships whether a 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 model 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 does not 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 effectively serves as a federal statutory scheme for governing partnerships.

Islamic Law[link]

The Qirad and Mudarabas institutions in Islamic law and economic jurisprudence were the precursors to the modern limited partnership.^{[dubious – discuss]} 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.^[9]

In medieval Italy, a business organization known as the commenda appeared in the 10th century. As an institution, the commenda is very identical to the qirad but whether the qirad transformed into the commenda, or the two institutions evolved independently cannot be stated with certainty.^[10]

See also[link]

• Business partnering
• Corporation
• Equity partner
• General partnership
• Joint venture
• Keiretsu
• Limited liability partnership (LLP)
• Limited partnership (LP)
• Partnership accounting
• Partnership taxation
• Strategic Alliance
• Types of business entity

Notes[link]

This article uses bare URLs for citations. Please consider adding full citations so that the article remains verifiable. Several templates and the Reflinks tool are available to assist in formatting. (Reflinks documentation) (March 2012)

External links[link]

• Reference for Business 2nd edition article about partnerships