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                                                                                                BUSINESS FORMS

Partnership  


Definition:  A partnership is an agreement between two or more parties that have agreed to finance and work together in the pursuit of common business goals. All partners bear equal responsibility for debts incurred.

Characteristics of a Partnership:

  • A partnership is an agreement between 2 or more people.
  • A contractual relationship can be in writing or oral.
  • There are no legal requirements in starting a partnership except the drawing up of a partnership agreement.
  • Partners are jointly and severally liable for debts on the business.
  • Each partner must make a contribution to the Partnership.
  • The capital of the partnership is controlled by partners.
  • The partnership does not have a separate legal person independent of the partners. Each partner can bind the Partnership.
  • The profits and net assets are usually distributed amongst the partners in proportion of their respective interests.
  • The Partnership is not a "person" for tax purposes and is not taxed as a company would be. Profits generated vests in the partners personally and individually and the partners are personally taxed on such profits of the business. 
  • On dissolution, the assets are liquidated, creditors are paid and partners must stand in for any shortfall.
  • If the Partnership's estate is sequestrated, the estates of the partners can follow unless the partners undertake to pay the debts of the Partnership.
  • The life of the Partnership is not separate from the lives of the partners. If one partner dies, leaves or is declared personally insolvent the Partnership becomes null and void unless indicated otherwise in the partnership agreement. 
  • It is optional to prepare the financial statements and there are no statuary audit requirements.
  • There is no specific suffix to be reflected in the name of the partnership. 


Advantages of a partnership of partnerships:

  • Partnerships are relatively easy to establish.  There are no formal requirements for the creation and running of a partnership. This makes partnerships an inexpensive business entity to run. There are few legal requirements involved in drawing up a partnership agreement.
  • Partners invest new capital into the business to finance expansion.
  • Partners contribute new skills and ideas into a business. A partnership may benefit from the combination of complementary skills of two or more people and this eases a burden on one man.
  • Partners share responsibilities for decision making and managing the business.
  • Partners share any profits and are therefore motivated to work hard.
  • Raising additional capital to finance further business expansion is easy, because there is no limit on the number of partners allowed in each partnership.
  • Partnerships can be cost-effective as each partner specializes in certain aspects of their business.
  • Partners are taxed in their own capacities, which could lead to lower taxation, depending on the level of income of the individual.
  • Partnerships provide moral support and will allow for more creative thinking and brainstorming. 
  • Partnership information is available to partners.
  • Partnerships are not compelled by law to prepare audited financial statements. 


Disadvantages of a partnership:

  • Partnership is not a separate legal entity and therefore partners are liable for the debts in their own capacity. 
  • Partners are jointly and severally liable for the actions of the other partners. The personal, individual assets of the partner may be attached for the liabilities of the partnership under certain circumstances.
  • Discussion between partners can slow down decision making and they may disagree on important business decisions.
  • Problems can arise if one or more partners are lazy, inefficient or even dishonest. There may be arguments, the business may lose money and other partners will have to work harder.
  • The partnership may terminate on the death of a partner, unless there are sufficient funds available to buy the deceased partner's interest or indicated otherwise in the partnership agreement .
  • Changes or transfer of ownership can be difficult and generally require a new partnership to be established unless indicated otherwise in the partnership agreement.
  • On dissolution, the assets are liquidated, creditors are paid and partners must stand in for any shortfall.
  • If the Partnership's estate is sequestrated, the estates of the partners can follow unless the partners undertake to pay the debts of the Partnership.