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Before getting into any business endeavor, an individual is supposed to make a proper analysis of the merits and demerits of that venture so as to make an informed decision of whether to get into it or not. It is particularly very important for an individual to find out more about a partnership form of business before deciding to be part of it.
A partnership kind of business may be defined as a legal form of a business undertaking that is usually formed by two or more people who share the business responsibilities with respect to the management of the business and the proceeds that are incurred by that business (Business Organization, 2010). Each partner in this form of business shares the responsibility of contributing to the creation and maintenance of the total enterprise through bringing together their capital, knowledge, skills and activities. Each partner is also legally accredited to a share of the business profits.
Merits of a Partnership
Being part of a very strong team of entrepreneurs who build and believe in an enterprise and who are highly committed and devoted to it gives an individual a substantial advantage as opposed to operating a sole proprietorship. A partnership form of business which encourages the integration of a diversity of talents, skills, personalities, training and experience is definitely advantageous especially when it is managed in a manner that mandates each partner to compliment the others. Partnerships are also beneficial in the sense that they encourage the bringing together of a pool of capital to run the enterprise. In addition, the partners can find time to do other things since they are not required to be at the business premises at all times. This is so because they may decide to operate on duties or even find employees to work for them. Partners may also be of more value to one another if each of them possesses a skill that complements the skills of other partners. Finally, a partnership form of business is also advantageous because in case of any risk in the course of running the business, the partners share out the total cost involved and therefore the amount that each partner contributes is reduced significantly (Business Organization, 2010).
Demerits of a Partnership
Despite the fact that the multiplicity of possessions such as character and personalities, training and experience, knowledge and skills and other valuable traits may be beneficial to a partnership, this same diversity can be quite harmful in the sense that it may give rise to conflicts within the business and destroy friendships, and eventually the entire business. In particular, it is important to note that partners often spend a lot of time trying to reinforce their relationships instead of seeking new ways of strengthening their enterprise (Sheffrin, 2003). Other disadvantages of partnerships include: sharing of rewards, complicatedness in the decision making process, sharing of acknowledgment in cases where the business is successful even when the success was effected by a only a single partner or a few of them, and disbanding the business in case a single partner buys out the rest when dissention arises, or due to the death of one of the partners.
How to select a good Partner
There are several attributes that one needs to consider before selecting a potential partner. To determine whether a specific person can be a good partner or not, you need to determine whether you share similar work habits, and goals and objectives of operating the enterprise. You also need to find out whether your strong personal traits correspond or conflict with those of the other person or persons. Dissimilar capabilities will enable you to divide up the business duties appropriately as well as provide for better coverage and solution to any upcoming business problems as each of the partners is able to contribute broadly in his/her area of proficiency (Business Organization, 2010).
Forms of Partnerships
There are several forms of partnership businesses and therefore it is important for any one to understand the legalities that are involved in the formation and operation of each one of them before deciding to enter into any partnership. The most common forms of partnership businesses are the general partnership, the limited partnership and the limited liability partnership. It is important to note that in most forms of partnerships, partners are always normally liable for all the impending business debts and obligations, and this includes court judgments. Therefore, if the enterprise becomes debilitated such that it can not pay its creditors, the creditors have the legal right of acquiring any of the partner’s possessions. This is particularly true for a general form of partnership where each of the partners has unlimited liability for the business debts. For a limited partnership, each partner has also an unlimited liability for the business debts. However, the scope of the limited partners towards the business debts is limited to their levels of financial involvement towards the whole enterprise. Contrary to the aforementioned kinds of partnerships, a limited liability partnership is a form of a partnership business in which some or all of the business partners hold a limited liability for all the business debts. Therefore, in a limited liability partnership, none of the partners is legally accountable or answerable to the recklessness or indiscretion of another partner (Sheffrin, 2003).
Termination of a partnership
One of the major limitations of partnerships is that when one of the partners decides to depart from the business, the partnership normally dissolves especially in cases where proper structures are not formulated to guide the running and termination of the partnership (Sheffrin, 2003). Consequently, when such a situation arises, all the partners are forced to complete any imminent business responsibilities that they might be having, settle all the debts that the business has, and split the existing business assets and profits amongst themselves. In order to prevent the occurrence of such a state of affairs, the partners need to create a buy-sell or buy out agreement as a vital element of their partnership agreement. These agreements may help the partners in planning and deciding on what actions to take in case one of the partners dies, becomes incapacitated, retires or decides to go away to pursue other activities. Another advantage of this agreement is that it can set down the procedures that can allow other partners to buy out the interests of the leaving partner so that the entire business can keep going as usual.
It is actually advisable for anyone to seek the advice of a lawyer before entering into a partnership business. The services of the attorney will be useful during the drawing up the partnership agreement. His services are also relevant because the new business might require specialized legal advice so as to safeguard your intellectual property rights. This includes your ownership rights with regard to the business name, copyrights, trademarks and patents.
It is worthwhile for you to get into a limited liability form of partnership where you will have a limited liability for the business debts. This implies that you will not be liable for the outstanding business debts that existed before you became a partner in that business. However, it is imperative to consult different experts like lawyers and accountants to help you interpret the legal requirements and other necessary conditions before joining any form of partnership.