Businesses Suitable For Partnership Legal Structure

Fact to note before going into a partnership form of business. In a partnership legal structure, persons having different types of talents, expertise skills and managerial abilities come together for a business partner relationship. So it is a form of business venture where each partner contributes the best as per his specialization and experience.

What is Business Partnership?

A partnership is a form of business in which two or more people operate for the common motive of making profit.

Those who engage in this forms of business ownership are called partners – business partner relationship (corporate legal structure).

business partner relationship

Legally, the number of persons that should engage in a partnership business is between two (2) and twenty (20) persons.

Characteristic Of Partnership

  1. The capital is provided by the members who make personal contribution to the establishment and running of the business. 
  2. The partners pool their talent knowledge together for the successful running of the business.
  3. It is very easy to form and dissolve.
  4. All the partners have unlimited liability.

Sources Of Capital Available To Partners

  1. Trade credit 
  2. Contributions by the members 
  3. Loans from private individuals 
  4. Retained earnings.

Formation of partnership business for the prevention of misunderstanding or conflict among the partners, it is advisable to reduce all the agreements into written form future purpose. 

When this is done, the document becomes an “article of partnership” or “partnership deed”.

The contents of a partnership deed or article of partnership are as follows:

  1. The name of the business to be run; 
  2. The type of business undertaken;
  3. The names of the partners; 
  4. Amount of capital contributed by members of partners; 
  5. How profit and losses is to be shared among members; 
  6. The duration of the partnership;
  7. The location of the business;
  8. Steps for the dissolution of the partnership 
  9. Right and obligations of each partner; 
  10. How to distribute the partnership assets upon its dissolutions;
  11. Procedure for withdrawal of capital by the partners;
  12. Duties and power of each partner;
  13. Commission payable to the partners, if any.

Types Of Partnership Business

There are two types of partnership business structure, namely:

  1. General or ordinary partnership
  2. Limited partnership 

Types Of Partners 

  • Nominal Partners: These partners do not invest any capital, or share profits.  They “only” allow the firm to use their “name” as a partner.
  • Dormant Partners: This type of partners only contribute capital and share the profits or bear the losses, if any. They are not part of the managerial crew.
  • Active or General Partners: This type of partners contribute capital, share profits and other challenges that business faces. 

Right and liabilities accrue to each partners in a partnership business.

  1. The right to get interest on the capital or loan granted to the business.
  2. Right to consent to the admission of a new member 
  3. Right to take part in the day-to-day running of the business.

Advantages Of Partnership Form Of Business 

  1. Risks Sharing: All the partners share the business risks equally assuming they all contributed equal capital. 
  2. It is easy to form: It does not compulsory require any legal formalities. It is not necessary to get the firm registered. A simple agreement between members of the partners is sufficient to create a partnership.
  3. Availability of large resources: The partners can contribute more capital, more effort and more time for the business as compared to a sole proprietorship.
  4. Better decision making: In case of any conflict, they can sit together to solve the problem.

Disadvantages Of Partnership Form Of Business 

  1. Sharing Of Profits: There is no set system for sharing profits in a partnership form of business thereby causing conflicts among partners. 
  2. Lack of harmony: There might be disagreement between partners.
  3.  Uncertainty of life: Partnership form of business might come to an end with death,  unsatisfied partner e.t.c.

This decision have an impact on how much you pay in taxes, it will affect the amount of paperwork your business is required to do, the personal liability you face and your ability to raise money.

 Before going into any form of partnership business, the above ideas should be put into consideration for a legal structure of a business plan.

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