Partnerships

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Partnerships

Deed of partnership

A written document that sets out the business relationship between

members of a partnership.

Limited Partner

A member of a partnership who has unlimited liability. Such partners

invest money and have a share of the profit, but play no part in

running the firm.

Partnership

Where two or more people own a business together with a view to making

a profit.

Sleeping partner

A member of a partnership who invests money in the firm but plays no

part in its running.

What is a partnership?

A partnership exists when two or more people own a business together

with a view to making a profit.

Most partners have unlimited liability, therefore if the business

fails they can lose all their personal wealth.

A maximum of 20 partners is allowed in general partnership.

Each partner is a part owner in the business and has the right to take

part in running it.

Sleeping partners of limited partners may invest in the business but

take no part in its running.

Why form a partnership?

To finance expansion of a sole trader’s business. A sole trader’s own

resources will be limited.

To obtain capital for a business

To get someone to share the work and responsibility of running a

business

To add new skills to the business.

Deed of Partnership

This is a very important document and is the contract that sets out

the terms of the relationship between the partners.

Benefits of working as partners

More start up capital

Shared costs

Shared decision making

Wider range of skills

More ideas.

Drawbacks of working as partners

Unlimited liability

Have to share profits

Limited capital

One partners actions can ruin the business

No continuity / stability

Hard to get money back

Activities

1. Unlimited liability is more of a risk to partners than it is to

sole traders because if the business fails, the partners could lose

all of their personal wealth, not just the money invested in the

business, even if the problem was not to do with them. If someone was

owed money by the business, the partnership can be sued or just one

partner could be sued. If that partners had to pay the debt, he or

she would have to get the other partner to pay their share of the

money owed.

2. The reason that there is a legal limit on the number of partners in

a partnership is because if there are to many partners it gets out of

hand, and it becomes hard to keep track.

3. See separate sheet

4. We don’t believe this statement to be very true at all because, we

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