So, you’ve decided to start a business. But what type of business should you start? There are many ways to form a business, each with its own distinct advantages and drawbacks. In fact, there are four main types of business entities: a partnership, a sole proprietorship, a corporation, and a limited liability company.
Each type of business brand has different tax implications, liability issues, and ownership rules. So how do you decide which is right for you? We are going to take a closer look at the partnership business entities.
What Is Partnership In Business
A partnership in business is a legal relationship where two or more persons (also known as partners) own the assets and liabilities of the business. The partners are also jointly and severally liable for the obligations of the business.
As a business partner, you are entitled to share in the profits and losses of the business. However, the business must be organized and operated in a manner consistent with the partnership agreement.
Common examples of a partnership business are law firms, physician groups, real estate investment firms, and accounting firms. A partnership can take many different forms, from an informal business between friends and relatives of sound mind to a formal marriage where both partners make financial distributions from their assets on dissolution.
Advantage Of Partnership In Business
There are many reasons why you should consider forming a partnership. Below are just a few;
- The collaboration of two or more people results in more productivity.
- The business will ultimately become easy to establish and start-up costs are low.
- There will be adequate capital availability for the business.
- The business has a better chance of borrowing capacity.
- there is an opportunity for income splitting, an advantage of particular importance due to resultant tax savings.
- The affairs of each partner are private.
- There are limited external regulations.
- It’s easy to change your legal structure later if circumstances change.
Disadvantage Of Partnership In Business
- The liability of the partners for the debts of the business is unlimited.
- Each partner is liable for their share of the partnership debts as well as being liable for all the debts.
- There is a risk of disagreements and friction among partners and management.
- Each partner is liable for actions by other partners.
