Partnership

Partnership:

• A partnership is a legal form of business with two or more persons agree to carry on a business together.
• This agreement can be written or oral.
• There are two types of partnerships:
  
  1. General partnership.
  2. Limited partnership.
• In the words of Solomon, “Two can accomplish more than twice as much as one. If one fails, the other pulls him up, but if a man falls when he is alone, he’s in trouble. Besides, one standing alone can be attacked and defeated, but two can stand back-to-back and conquer.”
• A partnership business can be a relationship disaster or a positive experience.
• To have a successful partnership, there are a few criteria:
  
  1. Have the same vision.
  2. Divide business roles according to each individuals strengths.
  3. Avoid the 50-50 split.
  4. Hold a monthly partner meeting.
  5. Create a partnership agreement.
• Partnership by estoppel, which means a person may be considered a partner even if not formally included in the partnership.
• “Estoppel”  means that one is not permitted to deny. In the context of partnerships, it means that a person cannot deny being a partner if he permits the partnership use his name.
For example: - A situation in which partner A and partner B start a business and offer non-partner C a profit interest in the company if they can use C’s name in the business. If a bank lends money to the partnership and the partnership becomes insolvent, C would be considered a partner and could be held liable.

Advantages of partnership:

• Ease of formation.
• Availability of capital.
• Diversity of skill and expertise.
• Flexibility.
• No special taxes and only single level of taxation.
• Relative freedom from government control.
• Shared burdens.
• Different views. As problems are looked at from different angles, it can arise in more creative ways of meeting difficulties in a business.
• Effective decisions.

Disadvantages of partnership:

• Unlimited liability.
• Potential for conflicts between partners because many disagreement might arise.
• Conflict of opinions.
• Complexity of profit-sharing.
• Difficulty exiting or dissolving.
• All partners are potentially personally liable for all business debts and lawsuits.
• Uneven ambition.
• Reduced autonomy.

General Partnership:

• A partnership in which all owners share in operating the business and in assuming liability for the business’s debts.
• Consists of two or more individuals who jointly own the assets, liabilities, revenues and losses.
• Each partner enjoys the benefits of certain tax allowances and each has legal ownership of the assets of the business.
• Each of the two or more partners will have unlimited liability for the debts of the business.
• The income and expense is reported on a separate return for tax purposes, but each partner then reports his or her pro-rata share of the profit or loss from the business as one line on his personal tax return.

Limited Partnership:

• A partnership with one or more general partners and one or more limited partners.
• Limited partners have no personal liability and stand to lose only the amount which he has contributed and any amounts which he has obligated himself to contribute under the agreement.
• Limited partner’s responsibilities are spelled out in the partnership agreement.
• Limitation can be placed on whether who make decisions, how profits and expenses are allocated, how long the agreement is valid and what happens when the business is sold.

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