A partnership is a form of organization where two to twenty persons are associated to operate a business entity with a view to earn profit. Each member of such a group is individually known as ‘partner’ and collectively the members are known as a ‘partnership firm’.
In order to avoid misunderstandings about how profits/losses are shared, the responsibilities of each partner, and other ownership, management, and operating decisions the partners usually have a formal legal partnership agreement which sets out the rights and obligations of each partner.
Some factors to consider in a partnership deed
-The number of partners needed
-Capital invested by each partner
-Interest on capital paid to each partner
-Profit or loss sharing ratio between or among partners
-Salaries paid to partners
-Admission of a new partner
-Dismissal or withdrawal of a partner
Advantages of Partnerships
-Easily formed
-More people to contribute capital than sole trader
-Greater continuity than sole trader
-Expenses and management of the business are shared
Disadvantages of Partnerships
-Generally unlimited liability of partners
-Possible disagreement among partners
-Each partner is liable for the debt of the business
-Membership limit of twenty partners may sometimes restrict the capital resources of the business depending on the nature and scale of operations