Partnership A partnership is a relationship that exists between two or more persons carrying on a business common with a view to making profit. It is an agreement in which two or more persons combine their resources in a business with a view to making a profit. In order to establish the terms of the business and to protect partners in the event of disagreement or dissolution of the business, a partnership agreement should be drawn up, usually with the assistance of a lawyer. Partners share in the profits according to the terms of the agreement. Where two or more persons wish to form a partnership, then it is recommended that they agree on the terms upon which the partnership will be run and the relationship between each other. This is done in writing and signed off as agreed by all the partners and therefore it becomes a partnership deed or agreement. Contents of partnership agreement Name(s) and address(s) of both the firm and the partners Capital to be contributed by each partner The profit sharing ratios that may be expressed as a fraction or as a percentage.
22 Contact: 0707 737 890 Salaries to be paid to any partners who will be involved in the active management of the business Any interest to be charged on drawings made by the partners. Interests to be given to the partners on their capital balances. Procedures to be taken on the retirement or admission of a partner Types of Partnership General Partnership All members share the management of the business and each is personally liable for all the debts and obligations of the business. This means that each partner is responsible for and must assume the consequences of the actions of the other partner(s). Limited Partnership Some members are general partners who control and manage the business and may be entitled to a greater share of the profits, while other partners are limited and contribute only capital, take no part in control or management and are liable for debts to a specified extent only. A legal document, setting out specific requirements, must be drawn up for a limited partnership. Reasons for partnership 1. Additional capital incase a sole trader or one person is not able to raise sufficient capital. 2. In case there is need for skills or expertise in certain areas of the business. 3. To involve more persons in the business especially for a family. Membership A partnership has minimum membership of two (2) and a maximum of fifty (50) except for professional firms (e.g.) lawyers, doctors, accountants etc. whose maximum membership is twenty (20) persons. Corporation A corporation is a legal entity that is separate from its owners, the shareholders. No shareholder of a corporation is personally liable for the debts, obligations or acts of the corporation.