The Advantages and Disadvantages of Partnerships

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In business, a partnership is a legally binding agreement between two or more people to either finance, or operate a business, or do both. Every partner as a certain level of authority and responsibility in the affairs of the business be is in management decisions or direct involvement in the daily operations of the business. The authority and responsibility are based on the capacity of the partnership as per the agreement. Hence, profits and losses will be shared based on the type or capacity of the partnership.Partnerships

Establishing a partnership is relatively easy but should be done through a well-though plan with enough time for deliberations. The partnership agreement should have following issues clearly defined:

1.    How to finance the business indicating the much each partner should contribute (capital investment)

2.    What each partner will do in the business (business operations management)

3.    What happens in the event of a partner’s demise (shareholding modalities)

4.    What happens in the event one or all partners wish to dissolve the partnership (dissolution of the partnership)

The Advantage of Partnership in Business
•    It is easy to raise the necessary funds to finance the business’ start-up. The more the partners, the more the start u capital that can be raised; this means better chances for flexibility and increased potential for growth and expansion. It also means a higher potential for profits not just for the business but also profits shared among the partners.

•    Part of the agreement in a partnership is shared responsibility of running the business. The partnership brings together a mix of complementary skills and a wider pool of knowledge. Work can be shared according to skills ensuring that every area in the running of the business is covered.

•    Business partners make a collective decision, which ensuring that each new input that can affect the business is a unanimous agreement. A partnership means more brains are at work to solve problems that befall the business and are a well of ideas.

The Disadvantages of Partnerships
•    Where two or more independent processes of thought are at play, disagreements tend to arise; which is an obvious disadvantage of having a business partner. People will have different ideas of who should do what, how the business should be run, and which are the best interests for the business. The disagreements birth disputes that may harm business bringing it to its knees, at the very least.

•    Reaching a unanimous agreement is not always a quick outcome. The delay in agreeing on various issues that touch on the management of the business can result is a slower rate of business operation that have a negative impact on the business’ growth.

•    Each partner is subject to unlimited liability in the business, which means all partners share the business’ financial risk and liability. However, such a matter can be better managed under a limited liability partnership.

•    The sharing of profits can become a challenge especially when a partners input into the business, both financially and physically, are put into account. For instance if a partner puts in less time in the running of the business due to various reasons, do the partner still get an equal share of the profits as all other members?