A partnership is a form of business that is operated by two or more people. The members share the profit and all the liabilities that are associated with it.
There are many examples of partnership businesses. They include Spotify and Uber, BMW and Louis Vuitton and Red Bull and GoPro.
Pros of Partnerships
- Easy to raise capital
As the business comprises of two or more people, it is easy to raise capital as each member will contribute the agreed amount towards the needed capital.
- Work and responsibilities are shared among the members
Each and every member will be given a responsibility by the company to carry out. This will enhance the smooth running of the business as the work will be performed within the stipulated time.
- Support and motivation
There will be the availability of support from other members in case the need arises. The members will also motivate each other in case they meet a challenge hence continuation of the business.
- Sharing of business risks and expenses
The expenses that may arise from the operation of the business will be shared among the members which will eventually make the load lighter as compared to the sole proprietorship.
- Availability of expertise
As the business entity will comprise of different members there will be the availability of expertise from different sources hence easy to run smoothly as there will be no need of going outside to look for people who have knowledge in the specific required field.
- High borrowing capacity
In case the business needs financial assistance from a bank, it will be much easier for it to be given the finances. This is because the account status will be good hence easy to borrow as compared to the sole proprietorship.
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Cons of Partnerships
- Difficulty in making a decision
It is difficult to make a decision as each and everyone has a different opinion. As opposed to a sole proprietorship, it will take time for members to agree and make the decision about anything concerning the business.
- Profit is shared
When the business has little profit, it has to be shared by all members regardless of the little profit the business has received during that time.
- Leaving of a partner
When one partner decides to leave the business it may become difficult for the business to value all the assets of the business for them to give him or her his shares.
Each partner is liable for the partnership’s debts. In case one partner has a debt, then the total amount has to be shared by all partners.
It is quite easy for a disagreement to arise as each and everyone wants to be superior to the other in the company.
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Before getting into a partnership form of business, you need to look into the positive and negative side of the business unit. Although many people start a partnership due to the benefits accrued to it.