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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Ingredient 1: Keep Within the Law
Question:
Why choose a partnership structure?
Answer:
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:
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- 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:
Advantages
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- 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.
Disadvantages
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- 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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