When we are starting any business the business structure plays an important role in it. We have to select the best and suitable business structure for our new business.
When we are selecting a business structure first we always have to check the advantages and disadvantages of every business structure.
This article is all about partnership with its advantages and disadvantages and all about partnership business.
Key points in this article:
- What is the partnership?
- Types of partnership
- Advantages of partnership
- Disadvantages of partnership
- Conclusion
What is the partnership?
The partnership is a legal business structure in which two or more individuals own business by sharing profits, loses and management of the business.
A partnership is a legal business structure of a business firm. When we select partnership as a business structure we have to register our partnership business according to government rules and regulations.
The partnership is a different type of business structure which is different from a corporation business. Partnership is just similar to the proprietor business structure.
Selecting partnership as a business structure makes many effects on our business like sharing of profit and losses, investments, management of the business, etc.
Types of Partnerships:
There are mainly 3 types of business partnerships are available which you can select when you are selecting partnership as a business structure.
3 types of partnerships:
1. General partnership
2. Limited Partnership
3. Limited liability partnership
1. General Partnership
A general partnership is normal type of partnership means in this type of partnership every partner means two or more partner in business will share profit and loses in equal ratio.
And they will also share liability and expenses in equal ratio. The main benefit of general type partnership is the power of authority and management is equal to all partners.
But if you want to change this all you can also do it by a legal method. There is a legal method also available to change this type of partnership.
2. Limited Partnership
The limited partnership means two or more general partners and one or more limited partner in the business firm.
The general partner will have all rights in a business firm like in management and authority and all.
But limited partner will only have right in the firm according to money invested by him in business.
The general partner has to bear all debts arise in the business firm. but limited partners have to bear only the limited amount of debts in business.
Distribution of profit and loss in general and limited partners will be according to the capital ratio they have decided or invested.
3. Limited liability partnership
Limited liability partnership (LLP) has more common like limited liability companies (LLC).
In this type of partnership, all limited and general partners are safe from the action of other partners.
In limited liability partnership, the limited partner's will receive the same benefits of taxation provided by general partners.
LLP is a combination of partnership and corporation. In Limited liability partnership, partners are only liable for there own actions in the business firm and for the actions of other partners in a business firm.
Advantages of partnership
There are many advantages to selecting partnership as a business structure.
1. Partnership business firm has more capital to invest in the business. Because they have more than one person so investment will also increase.
2. In a partnership business, there will be more than two heads in business which is better than having one head.
3. Having more than one head of business also reduces the load of work because there are two or more people are available to help you.
4. Liability will also decrease in partnership business because there are two or people available to share the liability with you.
5. If you want to change your legal structure later then it is also easy to change.
6. Partnership business has more chance of getting success soon.
Disadvantages of partnership
1. Partnership business structure increases the owners of the business and by increasing in heads of business it creates big problems at the time of making the decision in business.
2. Limited partners have to bear very less liability according to there invested capital but general partners have to bear more expenses and liabilities because they are active members and because of there actions.
3. Biggest problem arrises in partnership business when any partner leave the business that time you have to value the partnership asses and give him amount according to it and this will cost much money.
4. Increasing in numbers of heads in business will also increase the liability of business.
5. In a partnership business, the insolvency of the partner is the insolvency of the business firm because in partnership business the business is not an artificial person like in the joint-stock company.
Conclusion
Partnership business structure is a good business structure for your business if you don't have much money to invest as capital and also if you don't want to bear all risk alone.
Everything has its advantages and also disadvantages when you select partnership as your business structure first consider both the advantages and disadvantages of the partnership business.
Then select partnership business as a business structure for your business if this suit to your business according to your business needs.
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