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PARTNERSHIPS

Introduction

When two or more people join forces to own and run a business, their business is known as a partnership and they are called partners. Partnerships often occur in professional services such as doctors, solicitors etc. Partnerships will either adopt the name of the partners or trade under a suitable trading name.

Liability

As in the case of a sole trader the partnership has unlimited liability, this means that each of the partners are liable for the whole of any debt that the partnership incurs. This means that each of the partners is liable for not only the business debts that they create but also those of each and every person that is a partner in the partnership.

 

Legal Issues

In the UK partnerships are controlled through the Partnership Act 1890. If the partners do not draw up partnership agreement detailing the rights and obligations of each of the partners, then the Partnership Act will be used to determine the matter in the event of a dispute. In practice partners will often draw up a partnership agreement. A partnership agreement is a written document and will either be in the form of a Deed of Partnership or Articles of Partnership. Both of these types of partnership agreement will usually be constructed by a solicitor and cover the following;

  • Induction and retirement of partners
  • Voting rights of each partner
  • The amount of money each partner is investing in the business
  • How the profit will be distributed amongst the partners
  • The procedures that will be used to settle disputes/difference of opinions between partners.

Advantages and Disadvantages of Partnerships

The advantages of a partnership over a sole trader is that resources, whether money, expertise or skills is often greater than that of a sole trader. This is because there is more than one person contributing to the business. However as each of the partners will have their own opinion there is a potential for disputes which could prove to be detrimental to the business and the profits need to be split between each partner.

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