Forms of Business Organizations : Partnerships

Partnership is a form of organizations where two or more people get together and pool money and/or knowledge to start up a business with the intention of sharing the profits.  The minimum number of partners required to form a partnership is 02 and maximum number of partners are decided the law of the country. In general maximum number of partners in a partnership is limited to 20 partners. Partners may bring in their contribution in way of capital, knowledge, skills or just the goodwill (Called a sleeping partner who is not actively involved in business but provides the already established  goodwill to carry on the business).

Partnership has many advantages such as:

  • No minimum capital or maximum capital barriers in starting up the business.
  • No registration procedure is involved apart from forming the agreement among partners.
  • Losses are jointly shared by partners
  • Partners are jointly liable for liabilities not a sole liability.
  • Partner’s personal effort and capabilities drive the business success.
  • No corporate tax is applied.
  • Skills from different disciplines can be brought together.
  • Group decision making is always productive than single person’s opinion in decision making.

Partnership has many disadvantages such as:

  • Management is not easy as there are many people involved in decision making
  • There can conflicts between partners.
  • If one partner leaves partner leaves partnership comes to an end and partnership has to be reformed if remaining partners wish to continue.  (No perpetual Succession)
  • Since there are limit on maximum number of partners expansion is restricted.
  • Profits are equally shared among partners unless otherwise stated despite the contribution made.
  • Frauds can occur.
  • Partners have to pay income tax on their income.
  • No legal existence of the entity as a separate legal entity from partners.

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