Out of all the business styles that can be seen in the modern business world, sole proprietorship businesses and the partnership businesses are the most commonly seen in the world. Due to the simplicity of formation and minimal legal supervision encourages the investors to form a single owner or partnership business.
If anyone is willing to start a business but not having all the necessary resources, the best way of staring the business is starting a partnership business with a person who can fulfill the required resources. This is much safer than the sole proprietorship businesses as the liability of the business will be divided between the partners of the business. Several characteristics can be seen in partnership businesses that can be highlighted from the other business styles.
01 Ownership
Partnerships are organizations owned by two or more people. The business will be run solely by the owners and the investment is done by the people who are involved in the partnership. Due to this reason, the investments are higher than the sole proprietorship businesses and the growth capacity is higher as multiple talents got together to form the business. The minimum requirement to form a partnership is 2 people and there is no maximum requirement.
01. Starting the business
The start of partnerships are similar to sole proprietorships. Since there are no legal requirements, the owners or the investors can simply start the business and continue operating. There is no government-regulated requirement in starting the business. But it is always necessary to have a written or verbal agreement between the partners of the business before starting the business. In the modern world, partners usually create a written agreement due to the highly risky nature of organization liability.
03. Simple Structure
The organization structure is usually simple in these businesses. The partners can decide on the organizational structure based on their involvement in the business and the abilities they have.
04. Governing Documents
There are no governing documents for the sole partnership businesses. The owners can run their business according to personal preferences. Even though there are no governing documents, usually the partnerships run by the written or verbal agreement created between the partners of the business.
05. Liability
The owners have unlimited liability for the business. If the business gets bankrupted, the owners should bear the losses and pay the creditors from their own money. This unlimited liability adds risk to the partnership businesses compares to limited companies.
06. Legal formalities
There are no legal formalities required for the partnership businesses but advisable to have a partnership agreement. It is not considered as a separate person in the presence of law. The owners of the business will be representing the business and liable for the business activities.
07. Tax treatment
Since there are no legal formalities, there is no separate tax treatment for the partnership businesses. But the owners’ income tax will be calculated individually for them and there will not be any taxation for the partnership.
08. Transferring Ownership
This is a difficult part of the partnership business. In an event of a partner leaving the partnership, the partners should dissolve the partnership and form a new partnership. This includes settling all the liabilities before dissolving the existing partnership.
There is a special type of partnership that can be seen in the world known as “Limited partnership”. In a limited partnership, one or more partners of the business have unlimited liability to the business while the other partners of the business are having limited liability. When transferring the ownership of limited partnership, the limited partners can sell their portion of the partnership without dissolving the entire partnership.
Partnerships are most suitable for the businesses that needs multiple talents in different areas.