By definition a Partnership is the coming together of two or more individuals for their common good. Like the 'Sole Proprietorship', the Partnership is almost totally exposed to third party actions. Legally, a Partnership can often be formed with no written agreement; however, one would be ill advised not to set-out the rights and obligations of the partners.
If no such agreement is in existence, standard legal interpretations will generally be imposed unless there is clear evidence that the partners are subject to their own set of criteria, which would be the case for those belonging to a professional institution such as the Law Society.
One point that should always be borne in mind is that in the case of economic difficulties each partner will be liable not only for his shareholding but for all partnership debts which means that any person with assets should be very careful before going into business with a less well off counterpart as whilst the gains will be equal the potential losses will not!
- It brings together two or more people who have a personal interest in the welfare of the business enterprise.
- A partnership is generally seen as more professional than a sole proprietorship.
- There is always the potential of partnership disagreements.
- Each partner's personal assets will often be subject to creditor action, no matter his personal obligations/liabilities under the' partnership agreement'.
- Generally, the burden of being a partner falls unfairly on the wealthier individual. In other words, if X and Y become partners but X has twice the assets of Y, then - accepting an equal partnership - X and Y will share equally in the profits but X has twice as much to lose should the partnership fail.
- The cost of drafting a 'partnership agreement' can be prohibitive. As with sole proprietorships, the problem with partnerships is that it is very difficult, if not impossible, to separate partnership business activities from the individual partners.
- A partnership structure inevitably requires 'insurance' cover to be taken out. In most cases this will cost far more than a Standard English & Welsh "Limited Liability" company.