What Is A Business Partnership?

A partnership is made up of two or more individuals who are in business together. Partnerships may be a small family operation, or a larger legal or accounting firm.

The two main types of partnerships are:

  1. General partnership.
  2. Limited partnership.

General partnerships

No express agreement is required for this type of partnership. Partners invest their money, property, time, and labour, into the operation of the business. The owners are liable for all business debts. This means that even if you invest only a little into a general partnership, you are still potentially responsible for all of its debt.

This type of partnership does not need any formal agreement and can be verbal or even implied between the business partners. The partners have a  right to a share of any profit made and are also responsible for any losses the business may generate.

Limited partnerships

These must have a formal agreement between the partners and a certificate of the partnership is often needed to be registered. Limited partnerships allow partners to limit their own liability for business debts according to their portion of ownership or investment.

Partnership – Advantages

  • Sharing resources means that there is often more capital for the business
  • Each partner shares the responsibility for operating the business
  • Partners can combine their strengths and ideas
  • It is usually a simple process to start a partnership
  • It does not cost too much to set up.

Partnership – Disadvantages

  • General partners are individually responsible for the obligations of the business, creating personal risk (Unlimited liability)
  • Income is shared
  • Decisions are negotiated
  • Selling the business may be difficult as it may require a new partner
  • The partnership ends when any partner decides to end it
  • Disputes between partners may occur which could lead to dissolving the partnership and needs a partnership agreement
  • Partners are liable for the actions of each other as well as themselves.

Unlimited liability is the same for partnerships as it is for sole proprietorships. This can be limited by using Limited Liability Partnerships (LLP’s) which may provide some risk protection for owners.

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Posted in Business Entities, Business Law, Entrepreneur.