Speak about a partnership as a form of business organisation

When a proprietor wants to expand the business, one way to do so is to form a partnership, an unincorporated business formed for profit by two or more (up to twenty) co-owners who have agreed to combine their financial assets, labour, property and other resources and abilities. The rights and duties of a partnership are regulated by laws of the state where it is formed and by a legal agreement entered into by the co-owners. A partnership agreement ( a partnership contract), oral or written, expresses the rights and obligations of each partner, thus protecting their interests. Usually an agreement specifies general policies, the amount of money each is investing and the duties each partner assumes, such as how the profits and the losses are to be distributed, what part each partner is to play in managing the enterprise, and what each partner’s authority is. Without a written agreement, the partnership does not really exist. Many circumstances arise which cannot be foreseen and therefore must be anticipated. It should cover all areas of possible disagreement among the partners. Partners may make special arrangements to pay members of the firm for services rendered; interest on capital investment, time spent, or advances drawings before the balance of profit is to be divided in an agreed ratio.

The partners may be active, meaning that they are actively involved in the company’s business; or sleeping, which means they invest money in the company and receive a share of the profits, but do not concern themselves with the company’s business affairs and management.

Partnerships, like sole proprietorships, are easy to start up. Registration details vary by province, but usually entail obtaining a license and registering the company name. Complementary management skills are a major advantage of partnerships. Consequently, partnerships are stronger entities and can attract new employees more easily than proprietorships. It is also easier for a partnership to raise additional capital. Lenders are often more willingly to advance money to partnerships because all of the partners are subject to unlimited financial liability. The partnership, like sole proprietorship, is exempt from most of the reporting that the government requires of corporations, there is no legal obligation for keeping books or accounts. Furthermore, it has a favorable tax position when compared with the corporation. Federal taxes are paid by individual partners on their shares of earnings; beyond that the business is not taxed.

Partnerships offer great opportunities to combine talents, judgments and skills. For example, one partner may be qualified in production, another in marketing, and so on. At the same time, as the decision-making is shared, the business is bound to suffer if partners have serious disagreements. But partnerships are not so easy to dissolve as sole proprietorships, though if one partner dies or becomes unable to continue with the business, the partnership is automatically dissolved.

The major disadvantage of partnerships is that partners, like sole proprietors, are legally liable for all debts of the firm. In partnerships, the unlimited liability is both joint and personal. Partners are also legally responsible for actions of other partners i. e. the act of any partner is legally binding upon all the others. If one partner takes a large amount of money from the business and spends it, the others must pay the debt. Furthermore, partners who wish to retire may find it difficult to recover their investments without dissolving the partnership and ending the business.

There are two types of partnerships: general partnerships and, limited partnerships. The most common form is the general partnership, often used by lawyers, doctors, dentists and chartered accountants.

In general or ordinary partnership all partners have unlimited liability. Limited or special partnerships consist of at least one general partner with unlimited liabilities of the business and at least one limited partner whose liability is limited to the capital he has invested. The limited partners do not run the risk of losing their personal property if the company goes bankrupt, but neither do they have any say in how the business is run.

Partnerships can be small and consist of members of the same family. They are common in the professions and businesses where capital requirements are relatively small, e.g. retail and other service traders, architects, surveyors, management consultants and solicitors.

Date: 2015-12-11; view: 932