Concept of Partnership Business
A partnership is a formal arrangement by two or more parties to manage and operate a business and share its profits. Partnership Business is a specific kind of legal relationship formed by the agreement between two or more individuals to carry on a business as co-owners. The traditional form of business organization is sole trading or sole proprietary system. Because of weakness in this form i.e one-man talent, capacity, knowledge, skill, qualification, experience and the like the partnership form of business organization commences in the world of business. The partners in a business partnership invest in the business, and each investor/partner has a share in the profits and losses. It is composed of partners who participate in the day-to-day operations of the partnership are who have liability as owners for debts and lawsuits. In the case of sole trading, a single person is totally responsible for the total affairs of the business but there is joint responsibility in the case of a partnership form of a business organization. In a general partnership, the partners manage the company and assume responsibility for the partnership’s debts and other obligations. They own and operate the business and assume liability for the partnership, while the limited partners serve as investors only; they have no control over the company and are not subject to the same liabilities as of the general partners. Each partner shares equally in the workload, liability, and profits generated and paid out to the partners. All partners are actively involved in the business’s operations.
Partnership business is a business restricting its members not less than two, who contributes money or money’s worth to common stock and is known as partner’s capital. The partnership income tax is paid by the partnership, but the profits and losses are divided among the partners, and paid by the partners, based on their agreement. There is a greater amount of flexibility in partnerships. It’s easier to raise more capital by bringing more people into the business. The essential elements of the partnership could be laid down as follows:
- A partnership is the outcome of a valid agreement between or among partners.
- The agreement must indicate the sharing of profits and losses of the firm.
- The business of the firm must be carried on by all or any of the partners acting for all partners.