A partnership can be defined as an association of two to twenty persons carrying out business in common (in Ordinary businesses/ and ten persons (in, banking businesses) with a view to making profit. This type of business ensures and assures cross fertilization of Ideas, talents and experiences; more importantly it ensures increased capital base.
The many disadvantages of the sole proprietorship point to the fact that at least two good heads are better than one no matter how good. If a partnership grows in membership beyond 20 persons, it should be registered as a limited liability company.
In partnership, written agreement is not compulsory but where the services of seasoned lawyer can be engaged, better and assured relationship can subsist. The rules and regulations guiding the relationship between or among partners are called the Partnership Deed or Agreement. Deed is preferred in written form because it tends to lead to fewer possibilities of misunderstanding and disagreement between or among partners. The major headings in a partnership deed are as listed below:
- The capital contribution of each partner
- The profit and loss sharing ratios
- The rate of interest; ifany, to be charged on partner’s drawings.
- The rate of interest on capital contributed by a partner.
- Whether or not salaries should be paid to partners to compensate for the extra tasks performed, if any.
- Whether or not goodwill should be carried in the partners’ books of account.
Advantages of Partnership.
- There can be specialization in management
- There is more capital than in sole proprietorship
- There is privacy
- There is close contract with customers and suppliers and workers
- Partners usually share risks.
Disadvantages of Partnership.
- Limited capital for expansion
- Death of partner may result to the winding-up of the company
- Any partner may commit the rest in any transaction undertaken
- Lack of continuity
- Delay In the deciston making process
- Unlimited liability
Partnership vs Joint Venture.
Joint venture can be technically described as an association of from to twenty persons who have pooled their resources to execute a given task or project after which the association is dissolved. In modern business, like building construction, architects, civil engineers, electrical engineers and builders come together after the association ends. The association ends with the completion of a given project, the terms of which must be specified. It has the same advantages and disadvantages as partnership.