What is a Partnership?

• This is an association of a minimum of two people and a maximum of 20 people.
• They main operate a business with the common and primary goal of making a profit.
• The responsibilities of the business are shared among all the owners. This includes the sharing of profits and the sharing of losses that are created from the business.
• Partnerships are NOT legal entities and therefore cannot be sued. Instead, the individual partners have to be sued.
• Profits are said to be shared equally unless stated in the partnership deed.

Types of Partners

1. Limited Partners - they cannot take part in managing the business. No power to make decisions or ”bind the firm”.
2. Ordinary Partners - there must be at least one ordinary partner and he/she has UNLIMITED LIABILITY (meaning the debts can be extended to their personal assets).

To form a partnership, follow these steps:

1. Prepare a written agreement called the Partnership Deed, which serves as the foundation of the partnership.
2. In the absence of a Partnership Deed, the partnership will be governed by the rules of the Partnership Act.
3. The Partnership Deed should include vital information such as: Names of the partners. Nature of the business and its commencement date. Capital contributions from each partner. Profit and loss sharing arrangements among the partners. Allowance of interest on capital for partners. Maximum withdrawal limits for each partner. Salary details. Voting rights of partners. Duration of the partnership.

Pros and Cons of Partnerships