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.