Partnership is a business formed by two or more people. According to the law the maximum number of partners should be fifty. When partners come together they are expected to draft a partnership deed which should spell the rules and regulations of the partnership. The contents of partnership deed include: the ratio of sharing profit and losses among partners, salaries to be paid to active partners, interest to be paid on capital, interest to be charged on drawing and the procedure of admitting or expelling a partner. If partners fail to draft a partnership deed then in case of a dispute the court assumes that: all losses and profits are be equally shared among partners, no salary is paid to active partner, no interest is charged on drawings, a partner is not allowed to carry out a competing business and all decisions are made in accordance to the will of majority partners. The balance sheet and profit and loss account is the same as that of a sole trader; however a new section called the Appropriation account is included to profit and loss account to show how the partners share the Net Profit.
Advantages of partnership
There are several advantages of partnership business. One, Partners share any loss made unlike in sole proprietorship where the proprietor suffers loss alone. Two, the process of registering the business is not as complicated and expensive as that of forming companies. Three, capital base can be increased through contribution of partners unlike sole proprietorship. Four, Members contribute in decision making therefore a quality decision can be made. Five, members share tasks according to skills and experience unlike in sole proprietor where tasks cannot be shared. Six, a partner can get off day to relax unlike in sole proprietorship where the trader is over worked.
Disadvantages of partnership
There are several disadvantages of partnership business. First, a mistake done by one partner is suffered by all partners. Second, it takes long to make decisions because all partners must be consulted. Third, continuous disagreement among partners may lead to dissolution of the business. Fourth, lazy partners benefit unfairly from hardworking partners. Fifth, its sources of capital are not as many as those of companies because it cannot sale share to the public. Lastly, if the main partner dies or withdraws from the business the partnership may either collapse or may be dissolved.
References
Gage, D. (2004). The partnership charter: how to start out right with your new business partnership (or fix the one you're in). New York: Basic Books.
