A partnership can be defined as an association of two or more persons who have agreed to combine their labor, property, and skill, or some or all of them, for the purpose of engaging in lawful business and sharing profits and losses with each other.
Partnerships present the parties involved with special challenges that must be addressed until an agreement is reached. Overall goals, levels of give and take, areas of responsibility, lines of authority and succession, how success is evaluated and distributed, and often a variety of other factors must be negotiated. Once an agreement is reached, the partnership is usually enforceable by civil law, especially if it is well documented. Partners who want their agreement to be affirmatively explicit and enforceable often write the company’s bylaws.
A partnership is especially attractive if it helps pool the talents or skills of the partners for their mutual benefit. Partnerships require people who are compatible, honest, healthy, capable, dedicated, and equally motivated to succeed. And due to the voluntary nature of associations, they are relatively easy to establish.
The term business in this definition includes all trades, occupations, and professions. Therefore, this article becomes very necessary for every individual to get the idea of haggling/planning and negotiating at any kind of business level.
Human beings are social beings, associations between individuals, companies, interest-based organizations, schools, governments and their various combinations have always been and continue to be common. In the most frequent associated case of the term, a partnership is formed between one or more companies in which the partners (owners) collaborate to achieve and share profits and losses. Partnerships exist within and between sectors. Nonprofit, faith-based, and political organizations can partner together to increase the likelihood that each will achieve its mission and to broaden its reach. Sometimes considered an alliance, governments may associate to achieve their national interests.
A partner acts as an agent for the company in conducting its business. However, a partner must exercise the highest degree of good faith in all dealings with the other partners, devote time and attention to the business of the partnership, and must account to the other partners for any secret profits made in the conduct of business. of the society. A partner’s liability for the debts of the partnership is said to be unlimited, except when the partner is a limited partner in a limited partnership organized under the provisions of a state statute that allows such limitation of liability.
A company arises from a contract entered into by the interested parties. No formality is required but the agreement can be written, inferred from conduct or oral. The agreement to form a partnership is known as a “Partnership Agreement”, the most important provision of which establishes how profits will be distributed.
Companies are governed by the law of contracts. It is recommended that people who wish to form a company write what we call “Statutes of society”. The Article of Association essentially contains the following articles:
• Name of the Association
• Name and addresses of each partner
• Statement of Business Purpose(s)
• Duration of the Association
• Company name and location
• Amount invested by each partner
• Profit sharing ratio
• Accounting Records and their Accessibility to Members
• Specific Duties of Each Partner
• Disposal or Dissolution of the Company and Participation in Net Assets.
• Provision for the protection of surviving partners, the estate of the deceased, etc.
• Restrictions on the assumption of special obligations by a partner.
TYPES OF PARTNERS
There are five types of partners:
1. Active Partner:- Is the partner who participates in all the activities of the company.
2. Sleeping or Sleeping Partner:- This is the partner who does not take an active part in the activities of the partnership but shares in the profits.
3. Nominal Partner:- Is the person who lends his name to the partners for consideration.
4. Secret Partner:- It is a partner who takes an active part in the affairs of the company but is not known to the public as part of the company.
5. Silent Partner:- This is a partner who is known to the public as part of the partnership; but he does not take an active part in the management of the company.
ADVANTAGES OF THE ASSOCIATION
1. Greater Source of Capital:- The pooling of the individual resources of each partner helps to raise a large capital. It makes it possible for an individual with knowledge, a new product, an invention or a new idea, but without money, to work with a man with money who is interested in the project.
2. More specialized management:- Ownership of a company by two or more people allows them to pool their skills and judgment for the benefit of all concerned.
3. Greater incentive for employees: Employees in partnerships tend to enjoy a better fringe benefits package and higher salaries. They have better prospects for recognition and earned promotions.
4. Legal recognition:- There is a company law that regulates the relationship between the partners themselves, and between the partners and their parties with whom they have to deal.
DISADVANTAGES OF ASSOCIATION
1. Personality Clashes: Partnership requires cooperation, trust, and dedication, but a failure by one of the active partners to fulfill his or her own responsibilities diligently could lead to personality clashes and the end of the partnership. Partnerships have been known to end because members could not agree on the best course of action to take on an important issue.
2. Difficulty in Withdrawals:- The contribution of each partner ceases to be the property of the individual who contributes it. When a partner needs money, he may not withdraw his contribution or borrow money from the company without the express authorization of the other partners. Many businessmen dislike this lack of flexibility characteristic of companies.
3. Unlimited liability:- Each partner is responsible for the obligations of the company. If one of the partners makes a costly mistake in running the affairs of the partnership, the creditors can sue, and if they obtain a judgment against the partnership, each partner may have to sell his or her personal assets to meet the obligations.
4. Short lifespan: Factors such as death, prolonged ill health, retirement, bankruptcy, insanity or otherwise could lead to the end of society.
In short, associations recognized by the government can enjoy special benefits in tax policies. Among developed countries, for example, business partnerships are often favored over corporations in tax policy, as taxes on dividends only apply to profits before they are distributed to partners. However, depending on the structure of the company and the jurisdiction in which it operates, the owners of a company may be exposed to greater personal liability than they would be as shareholders of a corporation.