While setting up a business venture, one of the most important decisions to make is to decide between

sole proprietorship and a partnership. While both offer distinct advantages and disadvantages, it is
pertinent to understand and properly comprehend partnerships in business before making a decision.
Understanding what partnerships are, how they work, and what benefits they offer is essential for any
aspiring entrepreneur.
A business partnership entails sharing of resources, skills, liabilities, profits and losses with one or more
individuals. This is done according to the partnership agreement, which is legally binding. Partners are
entitled to make decisions for the business organization in its entirety, and are, consequently, equally
liable for any decisions that other partners may make. Therefore, while a partnership is easy to
establish, it will only flourish when partners are compatible with each other. Act in harmony
The structure of a business partnership is one of its most important aspects as it governs the
responsibilities of all the partners in the entity. A clearly defined and well established structure is
fundamental to the long term success of a business partnership. The first step in forming the partnership
structure is to decide the partners. While there can be a large number of partners in a partnership, the
resulting structure becomes very complex It is imperative in understanding partnership structures
to know about the types of partnerships. There are two types of partnerships; General Partnerships and
Limited Partnerships.
General Partnerships involve shared resources and liabilities between two or more partners. Each
partner is accountable for all the partners in the venture. Each partner is also liable for any debts that
the partnership may incur. Each partner forms the association with the goal of earning profit. A general
partnership implies that the ownership of the business organization is shared between the partners. The
personal assets of the partners in a general partnership are liable to the partnerships obligations.
Similarly, any individual partner in a partnership may sign a contract or a business agreement, and
consequently the contract or agreement becomes binding to the business as a whole, and also to all the
partners.
Limited Partnerships, in contrast, are those that have at least one general partner who controls the day
to day operations of the business, and is personally liable for any liabilities of the business. In addition to
this general partner, these partnerships also include limited partners, who invest capital into the
business, but have no responsibility in the day to day operations of the business. The limited partners
are only liable to the extent to which they have invested in the business. In other words, they are only
liable for the amount which they have invested.
The formation of a business partnership usually involves a contractual agreement between the partners.
This agreement may be negotiated between the partners, or it may be crafted by an attorney. The
partnership agreement documents the rights and the liabilities of the partners involved in the
partnership. All matters pertaining to the operation of the business must be discussed and mutually
agreed upon by all partners at the time of the formation of the agreement, and these decisions must be
documented in the agreement. The partnership must also satisfy local regulations governing business
partnerships.
Some other important steps in the formation of a partnership include the determination of tax
obligations, capital investment, and the registration of the business with authorities. A business
partnership as an entity is not liable to pay taxes, however individual taxation information should be
provided if required by the government. Formation of a partnership involves investment by the partners
in the partnership either in the form of cash or in the form of assets. When partners introduce cash or
any other asset, cash or the other asset account is debited at the value agreed by the partners and the
corresponding partner's capital account is credited by the same amount. Finally, the business must be
registered with the responsible authorities. This step may include obtaining any required local licenses.
The partners may also register the business name as a trademark if they wish to do so.
It is also worth discussing here the concept of dissolution of a partnership. The dissolution of a
partnership occurs when one of the partners leaves the partnership either of their own accord, or by the
mutual decision of the other partners. There may be various reasons for a partner to abolish the
partnership which include legal reasons, bankruptcy, death, etc. Once a partnership has been dissolved,
the remaining partners must decide whether the business keeps on operations or not. If the decision to
continue operations is reached, a new partnership between the remaining partners must be formed,
and a new partnership structure must be determined if the previous one fails to account for the changes
due to the dissolution. The division of assets must also be decided and dissolution may go to court if no
suitable agreement is reached between the partners. Once a partnership is dissolved, the outgoing
partner has no liabilities towards the debts of the partnership, although during the process of
dissolution, the outgoing partner may still be liable depending on the partnership agreement and the
local laws.