A1 Partnership
A partnership is a type of ownership shared by two or more people. Each partner may invest money, have a say in decisions, contribute expertise and work and take a share of profits and losses.
The expectations of each partner are outlined in a legal document called the deed of partnership.
| Benefits of Partnerships | Limitations of Partnerships |
|---|---|
| Shared investment: There are more people to contribute finance on start up, growth and for business debts. This can either reduce the amount of personal assets an individual needs to put in or increase the total investment. | Unlimited Liability: Partners in a general partnership have unlimited liability. This means that they are personally responsible for the debts of the business. If the business can’t afford to repay any loans, suppliers, staff etc, the partners have to use their own personal assets. This may mean remortgaging their house or taking out a personal loan. |
| Shared Expertise: When forming a partnership, entrepreneurs may consider their own skill gaps when deciding who to enter into the partnership with. The management of different areas can be allocated to partners based on their strengths and experience. This both improves the quality of output and reduces the stress that can be caused when an Entrepreneur has to take responsibility for areas they do not have the skills for. | Shared Liability: Each partner is personally and jointly liable for the partnership's debts and obligations. This can lead to blame in times of crisis due to feelings of inequality in work load and effort. |
| Shared Risk and Liability: The burden of running a business and taking financial risks is shared among all partners. This can relieve some of the stress and financial insecurity that a solo trader would face. | Conflicts: As more people are involved in the decision making process, there are more opinions and perspectives brought into every decision. This can lead to conflicts which can lead to slower decision making and some partners being unhappy with decisions. |
| Decision making: Having more people involved in decisions than a sole trader can increase the ideas, experience and knowledge being contributed. This can lead to more informed decisions that can lead to better business performance. As there would generally be fewer people involved than in a larger company, there is likely to be less conflict which can slow down decision making. | Shared Profits: Profits must be distributed amongst shareholders which could reduce the amount individual partners take compared to being a sole trader. |
