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Partnership
The Partnership
A partnership is defined as an association of two or more persons
to carry on as co-owners of a business for profit. Though not
specifically required, written Articles of Partnership are
customarily executed. These articles outline the contribution by
the partners into the business (whether financial, material or
managerial) and generally delineate the roles of the partners in
the business relationship.
KINDS OF PARTNERS
 | Ostensible Partner.
Active and known as a partner. |
| Active Partner.
May or may not be ostensible as well. |
| Secret Partner.
Active but not known or held out as a partner. |
| Dormant Partner.
Inactive and not known or held out as a partner. |
| Silent Partner.
Inactive (but may be known to be a partner) |
| Nominal Partner.
Not a true partner in any sense, not being a party to the
partnership agreement. However, a nominal partner holds him or
herself out as a partner, or permits others to make such
representation by the use of his/her name or otherwise.
Therefore, a nominal partner is liable as if he or she were a
partner to third persons who have given credit to the actual or
supposed truth of such representation. |
| Subpartner
One who, not being a member of the partnership, contracts with
one of the partners in reference to participation in the
interest of such partner in the firm's business and profits. |
| Limited or Special
Partner.
Assuming compliance with the statutory formalities, the limited
partner risks only his or her agreed investment in the business.
As long as he or she does not participate in the management and
control of the enterprise or in the conduct of its business, the
limited partner is generally not subject to the same liabilities
as a general partner. |
ADVANTAGES OF A PARTNERSHIP
| Ease of formation.
Legal informalities and expenses are few compared with the
requirements for creation of a corporation. |
| Direct rewards.
Partners are motivated to apply their best abilities by direct
sharing of the profits. |
| Growth and performance
facilitated.
In a partnership, it is often possible to obtain more capital
and a better range of skills than in a sole proprietorship. |
| Flexibility.
A partnership may be relatively more flexible in the decision
making process than in a corporation. But, it may be less so
than in a sole proprietorship. |
| Relative freedom from
government control and special taxation. |
DISADVANTAGES OF A PARTNERSHIP
| Unlimited liability of
at least one partner.
Insurance considerations such as those mentioned in the
proprietorship section apply here also. |
| Unstable life.
Elimination of any partner constitutes automatic dissolution of
partnership. However, operation of the business can continue
based on the right of survivorship and possible creation of a
new partnership. Partnership insurance might be considered. |
| Relative difficulty in
obtaining large sums of capital.
This is particularly true of long term financing when compared
to a corporation. However, by using individual partners' assets,
opportunities are probably greater than in a proprietorship. |
| Firm bound by the acts
of just one partner as agent. |
| Difficulty of disposing
of partnership interest.
The buying out of a partner may be difficult unless specifically
arranged for in the written agreement. |
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