The best way to deconstruct the meaning of a phrase is to look at each word separately and understand what it is trying to convey. Likewise, Partnership in Business means to be partners in business. In other words, it is the combined work of one or more parties that together hold the business. So be it profits or losses, they face it together and are partners in this course as well.
What is Partnership in Business?
Now that you must have understood what this idea of Business Partnership is, let’s try to have a look at the definition.
A Business Partnership is generally defined by a legal written document that takes the consent of both parties. It states that they are joint partners in a business and none of them holds a monopoly over the business alone. Furthermore, the partners collectively invest the money, gain profit, and share the loss of the company.
What are the Features of Partnership?
Two or More Parties
The partnership consists of two or more parties doing business together. They must come up with their resources to pool jointly.
It involves the signing of a legal document governed by state laws. It states clearly all the parameters of the bond.
Profit and Loss Sharing
In Partnership, each party shares the profits and losses of the businesses.
The responsibility and the liability between the partners can vary depending on the type of partnership and its terms and conditions.
Mutual Trust and Confidence
None of the partnership can happen if trust and confidence between the two parties don’t exist.
What are the types of Partnership?
You can’t just wake up and think about being partners in a business. Before this let’s gain some knowledge regarding what are the types of partnerships.
General Partnership (GP)
It consists of the partners who participate in the daily happenings and have liability as owners of loss, debts, and lawsuits.
Limited Partnership (LP)
In this kind, one or more partners manage the business and are accountable for various decisions and the other partner(s) do not participate in the business and have no such liability.
Limited Liability Partnership (LLP)
It offers protection from liability by defending partners from the liability from the actions of other partners in business. Also, LLP is more common for professionals who are working in the same field.
How does Partnership works?
There are different ways in which partnership works and this depends on the type of partnership it is. Some partnerships are signed by individuals while others include companies. While in some partnership individuals become a part of the partnership, the rest comprises partners who have limited participation therefore a limited liability.
So partnership is not separate from the individual owners. Like the one signing the consent can be an individual or a company in a similar way both the parties are important for the working of the partnership. Hence, the business isn’t separate from the owners for liability purposes.
Similarly, Income Tax is not directly paid by the partnership rather all the profit, as well as the losses, are divided between each partner on their own pay their individual tax return.
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