Why choose a partnership structure?

By May 17, 2022 No Comments
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A partnership structure is the simplest way for two or more people to run a business together.  You share responsibility for your business’s debts.  You also have accounting responsibilities.


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Why choose a partnership structure?


In deciding to conduct a business with a partner, it is critical to consider each partner’s strengths and weaknesses, personality and experience; in short, what skills they can offer, to the business.

There is no need to register a partnership, but if you are using more than the partners’ own names as the name of the business or if you are using a completely different name, you will again need to register the business name.

It is advisable that a partnership agreement be drawn up, preferably by a solicitor, and signed by all parties  This will avoid any disputes at a later time.  

The written agreement defining partners’ relations, and specifying how profits and losses will be divided, generally includes the following provisions:

    • Names and addresses of the partners
    • Name of the business
    • Nature of the partnership business
    • Duration of the partnership
    • Initial capital contribution by each partner
    • Distribution of profits and losses to partners
    • Procedures for partner salaries/personal drawings
    • Partners’ roles within the business
    • Record keeping and accounting procedures
    • Bank details
    • The extent of each partner’s authority
    • Effects of death, bankruptcy, expulsion, incapacity or retirement of a partner
    • Dispute resolution processes
    • Procedures for the dissolution of the partnership

What are the advantages and disadvantages of operating as a partnership:

    • Simple and low cost to form and operate.
    • Additional expertise available to the business
    • Additional capital available to the business
    • Taxation advantages – income is split between partners.
    • Shared responsibility and authority of business operators.
    • Possibility of “fall back” in time of illness or vacation.
    • Unlimited liability – partners are usually jointly, or separately liable for business debts.
    • The danger of one partner putting others into debt.
    • Potential incompatibility and/or mistrust.
    • Possible problems within the working arrangements.
    • Maybe difficulties if one partner wants to sell out.

Few people who go into business with their best friend still have that best friend after a few years.  You must decide if you want a friend or a business partner as often they are not the same person.  Be cautious!

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