Partnership explained

Definition: A partnership can be created where two or more persons wish to establish a business relationship between themselves without becoming a company. The Partnership Act 1890, s.1 of the Act defines a partnership as ‘the relation which subsists between persons carrying on a business in common with a view of profit’.

What are the advantages of a Partnership?

1. Lack of formality:

An agreement to create a partnership can be created orally, in writing, or may be implied by conduct which requires no specific agreement between the parties to take place.

2. Easier to end partnership:Â

Partnership can be ceased any time if no formality is in place this allows each partner the freedom to leave the partnership any time and for any reason.

3. Confidentiality:

Documentation for the partnership can also be kept confidential and need not be disclosed to the public, unlike a company, which must make all company documents available for public inspection.

What are the disadvantages of a Partnership?

1. Threat of litigation:

If a Partnership Agreement is created, which, if breached, would lead to a claim for breach of contract by the other partners.

2. Liability:

Partners do not have a separate legal personality to the business and so will be personally liable for its debts and any losses incurred.

3. Can be dissolved any time:

Partnership that has no specified duration can be dissolved at any time which can create insecurity and instability for the remaining partners. Also dissolution can lead to the entire partnership ending, often it may lead to disagreement because other partners may not want this.

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