2 mins read
Partnership
Definition:
A partnership is a legal entity formed by two or more individuals who agree to carry on a business as co-owners. Each partner contributes capital, skills, and effort to the business, and they share ownership and control.
Types of Partnerships:
- General partnership: All partners are jointly and severally liable for the business’s debts and obligations.
- Limited partnership: Partners have limited liability for the business’s debts to their investment in the partnership.
- Limited liability partnership (LLP): Partners have limited liability for the business’s debts to their investment in the partnership, similar to a corporation.
Key Features:
- Joint ownership: Partners own and operate the business jointly, sharing ownership and control.
- Mutual agency: Partners are agents of the partnership and can act on its behalf.
- Shared responsibility: Partners are responsible for the overall success of the business and share in its profits and losses.
- Unlimited liability (except for LLP): In general partnerships, partners have unlimited liability for the business’s debts.
- Profit and loss sharing: Partners share the business’s profits and losses according to their agreed-upon partnership agreement.
- Taxation: The partnership is taxed as a separate entity, and partners are also taxed on their share of the partnership income.
Advantages:
- Access to capital: Partnerships can access capital more easily than sole proprietorships.
- Shared expertise: Partners can bring complementary skills and experience to the business.
- Enhanced market presence: Partnerships can have a stronger market presence than sole proprietorships.
- Increased stability: Partnerships can offer greater stability than sole proprietorships.
Disadvantages:
- Potential conflicts: Conflicts can arise between partners, especially in matters of control or profit sharing.
- Unlimited liability: General partnerships have unlimited liability for partners.
- Difficult to dissolve: Dissolving a partnership can be complex and time-consuming.
- Taxation complexity: Partnerships can have more complex tax reporting requirements.
Examples:
- Law firms
- Accounting firms
- Consulting firms
- Business partnerships