Partnership A
partnership exists where two or more individuals carry on a business together with the
intention of making a profit. Partnerships have much in common with sole-proprietor busi-
nesses. They are usually quite small in size (although some, such as partnerships of accoun-
tants and solicitors, can be large). They are also easy to set up, as no formal procedures are
required (and it is not even necessary to have a written agreement between the partners). The
partners can agree whatever arrangements suit them concerning the financial and manage-
ment aspects of the business. Similarly, the partnership can be restructured or dissolved by
agreement between the partners.
Partnerships are not recognised in law as separate entities and so contracts with third
parties must be entered into in the name of individual partners. The partners of a business
usually have unlimited liability.
What do you think are the main advantages and disadvantages of a partnership com-
pared to a sole-proprietor business?
The main advantages of a partnership over a sole-proprietor business are:
■
sharing the burden of ownership;
■
the opportunity to specialise rather than cover the whole range of services (for example,
in a solicitors’ practice each partner may specialise in a different aspect of the law); and
■
the ability to raise capital where this is beyond the capacity of a single individual.
The main disadvantages of a partnership compared with a sole proprietorship are:
■
the risks of sharing ownership of a business with unsuitable individuals; and
■
the limits placed on individual decision making that a partnership will impose.
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