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The Entrepreneurs Chronicles: Partnerships

partnerships

A partnership is a business where two or more people, companies, or groups get together and form a team that conducts business. A partnership can be small or large. Under Nigerian law partnership can be made up of no fewer than 2 and no more than 20 people. Every partnership is unique and made to order to meet the specific needs of the partners.

A partnership is quite often a good choice of legal structure for a new business. The way a partnership is set up and run as well as the way it is governed and taxed often make it the most appealing form of business. Being a partnership, the business owners necessarily share the profits, the liabilities and the decision making. This is one of the advantages of partnership, especially where the partners have different set skills and can work in accord. A partnership brings more resources, expanded audience, team spirit, and fosters a sense of pride to belong to an influential group.

In partnerships, the partners can be equal or unequal; it all depends on the factors involved (mutuality of purpose and agreement). Usually the general partner runs the business and has knowledge about the daily running of the business. Other partners in this case would be limited partners, who would lose only the amount of money or other assets they contributed to the partnership.

Partnership shares can be determined through a number of different formulas: the amount of money (investment capital) one puts in, hours of hard work (labour equity), the contained value of a scheme or innovation contributed, some other type of tangible asset contributed to the business.

 

ADVANTAGES

The major advantages in partnerships are Decision Making, Shared Responsibility, Flexibility, and Capital

Decision Making – Partners share the decision making and can help each other out when they need to. More partners’ means more brains that can be picked for business ideas and for the solving of problems.

Shared Responsibility – Partners can share the responsibility of the running of the business. This will allow them to make the most of their abilities. Rather than splitting the management and taking an equal share of each business task (according to their skills)

Flexibility – A partnership is generally easier to form, manage and run. They are less strictly regulated than companies, in terms of the laws governing the formation and because the partners have the only say in the way the business is run (without interference by shareholders) as long as an agreement is reached.

Capital – Due to the nature of the business, the partners will fund the business with start-up capital. This means that the more partners there are, the more money they can put into the business, which will allow better flexibility and more potential for growth.

 

DISADVANTAGES

There are two faces to every coin, and so it is in partnerships. The major disadvantages in partnerships are Liability, Taxation and Disagreements. Others come into play like Profit Sharing and Agreement.

Taxation – One of the major disadvantages of partnership, taxation laws mean that partners must pay tax in the same way as sole traders, each submitting a Self Assessment tax return each year.

Liability – Ordinary Partnerships are subject to unlimited liability, which means that each of the partners shares the liability and financial risks of the business.

Disagreements- are impeding factor amongst partners, this can lead to disputes which might not only harm the business also sour relationships.

Profit sharing, partners share the profits equally. This can lead to inconsistency where one or more partners fell dissatisfied, reason profit, time and labour input are not equal but the benefits  are. In terms of agreement is not always fluid.

It is strongly advised that a partnership agreement be drawn up during the formation period to ensure that everyone aware of what procedures to follow in case of disagreement and what will happen if the partnership is dissolved.

In all, be smart when it comes to selecting your partners.

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