Friday, 6 August 2021

Partnership in Business: Types of Business Partnership

 A business partnership is also referred to as an agreement made between two or more two people to operate a business and share all the profit and loss of the business. In these types of businesses, the partners are equally responsible for all the decisions required for business growth. None of the partners can take control of the entire business. Also, no matter who leads the liabilities, the responsibility has to be borne by all the partners. But this is not the case in every type of business partnership. There are still some particular types of business partnerships with some other rules and criteria. There are 4 types of business partnership which we'll discuss in this article further.

But first, let us know about the advantages and disadvantages of the business partnership.

 

Advantages of Partnership in Business

 

If the burden is being distributed among multiple people then this is going to be beneficial. And this is only the major advantage of business partnership. Business pA business is advantageous in cases where one single partner is not able to bear the whole financial requirements of the business. In partnership, the partners share all the costs as well as profits among themselves which is the most positive thing here.

Apart from the financial benefits, even the workload and responsibilities of the business get divided among the partners. To decide for the betterment of the business, all the partners discuss and finalize it which lowers the burden from one. The partnership also creates a combination of different ideas which helps in the growth of the business.

 

Disadvantages of partnership in Business

 

If properly handled everything is beneficial but if in the case the things are not observed properly then it may lead to major disadvantages as well. The same is in the case of business partnerships. If the documentation is not completed properly any of the partners can turn into a rebel out of greed. This also generates a sense of fear in the partners. Apart from this, you need to bear all the liabilities although the mistake is made by the partners. It also does not create the sense of utmost respect as you won't be the only owner of the business.

 

Four types of the Partnership Business

 

1. General partnership

 

The very first type of partnership that we'll be learning about is the general partnership. This is the basic business partnership that does not require you to form a business entity with the state. In this type of business partnership, the partners can start their business just by signing a partnership agreement. In this form of partnership, all the partners share the ownership as well as the profits among themselves but still, they can make some terms in the partnership agreement as per their choice.

 

Now we will learn about the different powers exercised by the partners in the general partnership. So in this form of partnership each of the partners is independent to bind the company to a contract or any loans. In such cases, each of the partners will bear the total liability which means everyone will be responsible for the debt they made to the business.

 

In the general liability, the partners not only have lots of powers but also responsibilities. Suppose if in a case one of the partners gets a loan for the business and the business is unable to repay it then all the partners will now be equally liable for the debt. These kinds of business partnerships are very easy to establish as well as to dissolve. And generally, the partnership automatically ends when any of the partners dies or goes bankrupt.

 

2. Limited partnership

 

Limited partnerships are also known as LPs are the kind of formal business entities.

In this kind of business, there is one partner who is fully responsible for the management of the business, and the rest of the partners will only be providing money for the business but not participating in management activities.

In such types of business partnerships, a very limited number of partners invest in the business and get the financial returns but they will not be responsible for any debts or liabilities. In the limited partnership, the silent partners do share the profit but they will not lose the money more than what they have invested.

 

If a silent partner wants to actively participate in the management of the business, then the partner can do so but after this, they will lose their status as a limited partner and also the protection that they get. LP can also appoint the LLC as the general partner of the business so no one has to bear the unlimited personal liability.

 

3. Limited liability partnership

 

You can call a limited liability partnership one of the variations of the limited partnership. In this type, everyone operates as a general partner so everyone has the right to actively manage the business. But in this partnership, limits the liability for every partner for their actions.

 

All the partners will still be responsible for the debts and legal liabilities of the business but won't be responsible for the errors made by the other partners.

 

4. Limited liability limited partnership

 

This is a new kind of business partnership that might not be available everywhere. The limited liability limited partners also operate like the LP, it also has a general partner who is responsible for the business management but it also limits the liability of the general partner and provides liability protection to all the partners.

This might not be a good option if all the states of your country don't recognize it.

 

Therefore, a business partnership is both beneficial and even sometimes hectic if not gone smoothly. But the main secret behind finding a perfect partnership is that you need to choose the proper type of business partnership in which all the partners will be comfortable. Also, before establishing any business with partners make sure that all the legal documentation has been done properly so that none of the partners will face any further problems.

 

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