Partnership Advantages and Disadvantages There are distinct partnership advantages and disadvantages.

Before going into partnership advantages and disadvantages and especially before starting a partnership, let's first define "partnerships" and make sure we know how they operate. The particular rules about partnerships lead to the partnersh ip advantages and disadvantages. Partnerships Defined and Explained A partnership is an agreement between two or more people to finance and operate a business. Partnerships, unlike sole proprietorships, are entities legally separate from th e partners themselves. In a general partnership, however, profits and losses flo w through to the partners tax returns. Each general partner has equal responsibility and authority to run the business. Each partner should be involved in day-to-day operations of the business, and s hould make management decisions. Any partner may represent the business without the knowledge of the other partnersthe actions of one partner can bind the entire partnership. If one partner signs a contract on behalf of the partnership, the general partnership and each partner are responsible for that contract. The shar ed ownership concept that characterizes a business partnership gives it certain distinct advantages and disadvantages. Partnerships are relatively easy to establish; however time should be invested i n developing the partnership agreement. In a partnership agreement, the followin g arrangements, among others, should be spelled out: 1. How the business will be financed. 2. Who will do what work. 3. What happens if a partner dies. 4. What happens if one or both partners want to dissolve the partnership. It is strongly recommended that an impartial attorney be contacted to write the partnership agreement. Here s how to find the right attorney. Business Partnership Advantages Partnerships are relatively easy to establish. With more than one owner, the ability to raise funds may be increased, both beca use two or more partners may be able to contribute more funds and because their borrowing capacity may be greater. Prospective employees may be attracted to the business if given the incentive to become a partner. A partnership may benefit from the combination of complimentary skills of two or more people. There is a wider pool of knowledge, skills and contacts. Partnerships can be cost-effective as each partner specializes in certain aspect s of their business. Partnerships provide moral support and will allow for more creative brainstormin g. Business Partnership Disadvantages Business partners are jointly and individually liable for the actions of the oth er partners. Profits must be shared with others. You have to decide on how you value each oth ers time and skills. What happens if one partner can put in less time due to pers onal circumstances? Since decisions are shared, disagreements can occur. A partnership is for the lo ng term, and expectations and situations can change, which can lead to dramatic and traumatic split ups. The partnership may have a limited life; it may end upon the withdrawal or death of a partner. A partnership usually has limitations that keep it from becoming a large busines s. You have to consult your partner and negotiate more as you cannot make decisions by yourself. You therefore need to be more flexible. A major disadvantage of a partnership is unlimited liability. General partners a re liable without limit for all debts contracted and errors made by the partners hip. For example, if you own only 1 percent of the partnership and the business

fails, you will be called upon to pay 1 percent of the bills and the other partn ers will be assessed their 99 percent. However, if your partners cannot pay, you may be called upon to pay all the debts even if you must sell off all your poss essions to do so. This makes partnerships too risky for most situations. The ans wer would be a different business structure. If you Decide on a Business Partnership... ...you should create a "business prenup" that will protect a business if someone leaves. This "business prenup" should spell out what will happen to your company if a co -owner: wants out of the business wants to retire goes through personal bankruptcy wants to sell his shares to someone else goes through a divorce passes away You have two choices: you can have a business attorney write up your partnershi p agreement or you can do it yourself. If you decide to do it yourself, a good c hoice is "Business Buyout Agreements", which walks you through the creation of a legal contract -- a sort of "premarital agreement" for your business -- that pr otects everyone s interests. This document will help ensure a smooth transition following someone s departure.

: Asma Nawaz Ranjha Student of PunjabGroup of Colleges Sargodha E_mail: silent.pray786@yahoo.com

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