A partnership is a type of business organization. Two or more individuals own and operate this business organization. These individuals are partners. Furthermore, it is unincorporated. Although it is not considered a legal entity separate from its owners, the details of this arrangement are stipulated in a contract. Call that contract a partnership agreement. This includes both profit and loss sharing and decision-making rights.
Types of Business Partnerships
There are different types of business partnerships, including general partnerships and limited partnerships. Depending on the type of arrangement, the entity may be privately-owned or publicly-owned. The partners may have limited liability or unlimited liability for the activities and obligations of the business.
When there is a change in ownership or a change to the original partnership agreement, this relationship dissolves. If any partner dies or leaves the organization, then the other partners must dissolve the entity and create a new partnership. When any changes are made to the original contract, the partners must dissolve the entity and create a new organization.
Advantages and Disadvantages of Partnerships
There are several advantages to having this kind of entity. Business partnerships are easy to establish and are easy to dissolve. In addition, they give the partners a significant amount of operational freedom and flexibility. Also, partnerships do not pay corporate income tax (taxes are paid by the partners at the individual level). And as opposed to a sole proprietorship, a partnership can utilize the capital, entrepreneurial skills, and managerial expertise of more than one individual.
The disadvantages include the following:
- Unlimited personal liability of the general partners
- Limited access to capital resources