Partnerships :: Business and Management Studies

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