A partnership is a business owned and operated by two or more individuals who share resources, profits, and losses. Partners can have equal responsibility and liability (general partnership) or limited involvement and liability (limited partnership).
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Typically, partners have unlimited liability, making them personally responsible for business debts.
Key Features
- Two or more owners (2- 20)
- Shared decision-making
- Shared profits
- Joint liability
- Partnership agreement
| Advantages | Disadvantages |
|---|---|
| Easy to establish | Unlimited liability |
| Combined skills and knowledge | Potential conflicts |
| More capital availability | Shared profits |
| Shared decision-making | Limited life ( lack of continuity) |
| Flexibility | Decision-making delays |
| Shared responsibilities | Joint liability |
| Tax benefits ( no separate tax on partnership profit) | Difficult to transfer ownership |
| Enhanced credibility | Lack of independence |
| Reduced burden of compliance | Limited capital-raising potential |
What is a partnership deed?
A partnership deed, also known as a partnership agreement, is a formal document that outlines the terms and conditions governing a partnership. This legally binding document serves to clarify the roles, responsibilities, and rights of each partner involved in the business.The key elements included in a partnership deed are:
- Names and Addresses: The full names and addresses of all partners involved in the partnership.
- Business Name: The registered name of the partnership business.
- Nature of Business: A description of the type of business activities the partnership will engage in.
- Capital Contributions: Details of the amount of capital each partner will contribute to the business.
- Profit and Loss Sharing: The ratio or percentage in which profits and losses will be shared among the partners.
- Management and Duties: The roles and responsibilities of each partner, including decision-making authority and day-to-day management duties.
- Admission of New Partners: Procedures and conditions under which new partners can be admitted into the partnership.
- Withdrawal or Retirement of Partners: Guidelines for how a partner can withdraw or retire from the partnership, including any financial settlements.
- Dispute Resolution: Methods for resolving disputes among partners, which may include mediation or arbitration clauses.
- Duration of Partnership: The intended duration of the partnership, whether it is for a fixed term or indefinite period.
- Dissolution of Partnership: Conditions and procedures for dissolving the partnership, including the distribution of assets and liabilities.
Having a well-drafted partnership deed helps to prevent misunderstandings and conflicts among partners by clearly defining expectations and procedures.
Multiple Choice Questions
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Question 1: What is a partnership?
A) A business owned by a single individual
B)A business owned and operated by two or more individuals
C) A corporation with shareholders
D) A government-owned entity
Explanation: A business owned and operated by two or more individuals
How many owners are typically involved in a partnership?
A) 1-5
B) 5-15
C) 2-20
D) 10-30
Explanation: There are typically 2-20 owners involved in a partnership.
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Question 3: In a general partnership, what kind of liability do partners have?
A) Limited liability
B) Joint and unlimited liability
C) No liability
D) Liability only for their own actions
Explanation: Joint and unlimited liability
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Question 4: What do partners share in a partnership?
A) Only profits
B) Only decision-making
C) Shared control
D) Only resources
Explanation: Resources, profits, and losses
Question 5: What is typically required to formalize the terms and conditions of a partnership?
A) A shareholder agreement
B) A government license
C) A partnership agreement
D) A board resolution
Explanation: A partnership agreement
Report Card
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Related Links
- What is a business
- Types of business entities
- Sole trader
- Partnership
- Public limited company
- SWOT analysis
- Mission statement
- Vision statement
- Aims, Objectives, and Strategies
- Ethical objectives
- STEEPLE analysis
- Stakeholders
- Business Growth
- External business growth
- Economies of Scale
- Mergers and takeovers
- Joint venture
- Franchise
- Multinational Companies (MNCs)
- Worksheets
- YouTube videos
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