What is a Partnership?
Partnership Business Structure:
A partnership is a business structure in which there are between 2 to 20 or more
owners or partners. They share the profits and losses to the extent of their ownership in the business. Since they
are co-owners they share in the decision making and contributions such as knowledge, training and financial
contributions each partner may bring to the business to help it succeed.
There are many advantages to running a partnership business structure. Starting a
partnership business is an inexpensive and simple business structure to create. Partners combine assets, and having
more than one person involved in the business makes it easier to obtain financing from outside sources, because
there is a greater asset base to secure the loan or line of credit. All income and expenses that the business
generates goes directly to the owners and is shared according to ownership interest.
One of the best aspects of a partnership, is that it brings a pool of talent into the
business. Each partner contributes his strengths to the organization. It does not rely on one individual wearing
In the event of a death within members of the partnership, the business will have the
ability to continue on. This is not the case in a sole proprietorship.
One of the best things about a Partnership is by having multiple people involved
in the business, each person bring various skills and experiences to help run the business successfully. After the
death of an owner, the business can carry on. Unlike a sole proprietorship, where after the owner dies, the company
cannot be taken over by someone, it dies along with that person.
Partnership businesses, allow more flexibility. The workload is shared between
owners, so it makes it much easier for owners to focus his efforts in areas where he/she is talented.
As with other business structures, there are a few disadvantages to having a
Partnership Business structure. All owners are personally responsible for losses and debts incurred by the
Some Benefits are not directly deductable from the business income and all income
generated by the business is shared between the partners.
In order for your business to succeed, it is important to have open lines of
communication between business partners at all times.
With a Business partnership, partners or investors loss is limited to his/her
ownership percentage within the business. If the business experience losses, each partner is only responsible for
their own share.
If you decide to enter into a business partnership, it is important to have a legal
agreement drawn up to ensure the business will operate the you intend. The legal document should include a
structured plan on capital commitments of each partner, how much each partner will contribute up front to the
financial aspects of the business; A detailed agreement of each partner´s functional responsibility within the
business; An outline of how the profit will be shared between partners a record of ownership interest; for example:
who is/are the general partner(s) – the one overseeing day to day operations and who will have authorization for
cash withdrawals and salaries. As well, it should contain detailed information on how and when partners may be
added or removed from the partnership within the business.
This type of business works well for people who can communicate and get along well
with their partners as they understand the concept and enjoy operating as a team, if the lines of communication are
not open, or there is mistrust among partners, it could put your business in jeopardy.