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Introduction
A business partnership is an alliance of two or more parties that take on in a business venture in which the earnings and losses are divided equally. The legal description of a partnership business is an alliance of two or more people to collaborate as co-owners of a company for income.
The formation of a partnership necessitates a deliberate alliance of parties or businesses that co own the company and aim to conduct it for profit. Partners can shape the partnership by written or verbal agreement.
A partnership accord often directs the partners’ dealings with each other and to the company. Each partner has a right to share in the profits of the partnership.
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Unless the company accord asserts otherwise, associates share profits equally. Additionally, partners must donate equally to joint venture losses except if a partnership accord offers another arrangement. Each partner is also required to participate equally in the management of the partnership.
A popular vote settles disagreements involving the administration of the partnership. On the other hand, some choices such as letting in a new partner or force out a partner entail all the partners’ undivided consent.
Every partner owes a fiduciary obligation to the firm and to copartners. This duty necessitates that an associate ought to deal with copartners in good faith. It also requires that an associate should report to copartners for any profit that he or she obtains while engaged in partnership business. Each partner also has a responsibility of trustworthiness to the partnership.
Unless the copartners assent, a partner’s obligation of loyalty constrains the partner from utilizing partnership assets for personal benefit. It also constrains the partner from rivaling with the partnership, taking on in self-dealing, or seizing partnership opportunities. It is a fact that firms that participates in the business system as partners complement the company and its suppliers, thereby increasing the value to customers.
Business partnerships’ benefits to companies, suppliers, and consumers
Firms that participate in the business system as partners allow for minimal formalities and regulatory and reporting requirements required in conducting business deals. Although partnerships are governed by statute, the required statutory formalities are few. A concise written partnership agreement is a good investment in almost any circumstance. However, it is not required, and a partnership may be formed by a verbal agreement between two or more people and can be implied by behavior.
State statutes vary with regard to partnerships filing requirements and other formalities. The pertinent state statutes must always be reviewed and must be complied with. Most states do not require partnership registration with the secretary of state or other state official before commencing business. However, a certificate of assumed name or similar document is usually required when the partnership will be transacting business under an assumed name, trade name, or fictitious name (Schneeman, 2007, p.73).
Minimal formalities ensure that a partnership business is able to do business with its suppliers smoothly without having to jump major hurdles. This saves a lot of time and resources for both the organization and its suppliers (Practicing Law Institute., and United States, 1971, p.47). This smooth operation between the company and its suppliers ensures that the customers are provided with quality services or products in a timely fashion, thus benefiting the organization, its suppliers, and customers.
With partnerships, there is participation and flexibility in management. Unless one or more partners waive their rights, every partner has equal power and authority to manage the partnership affair. Partners of smaller partnerships may find this appealing if they have varied backgrounds and areas of expertise, and all wish to participate actively. All partners are allowed to act freely on behalf of the partnership, with few restrictions. Larger partnerships on the other hand are allowed the flexibility of putting the management of the partnership into the hands of the best individual or group of individuals for the job.
According to Bradley, firms which participate in the business system as partners are both competitors and collaborates with respect to their suppliers. Participation and flexibility in the management of an organization ensures that only the best suppliers are targeted as partners. For example, British Airways and Singapore Airlines compete for passengers but they played a partnership role in the development of the Airbus superjumbo for which both are major customers.
Organizations need to develop partnerships with the best suppliers to leverage their expertise and technologies to create a competitive advantage. Learning how an organization’s suppliers are performing can lead to superior visibility, which can offer prospects for more collaborative involvement in value-added activities. Many organizations are tracking product and services quality, on-time deliveries, customer service efforts and cost-control programs as part of the supplier rating system. This information can be used to develop supplier programs that will improve supply chain management, thus creating more value for consumers.
Participation and flexibility in management creates knowledge environments for managers in firms that participate as business partners. Knowledge environments for administrators look like experience environments for clients. Innovations in knowledge environments must reflect the granularity of managerial experiences, just like innovations in experience environments must reflect the depth of consumer experiences.
To create more value for consumers, organizations must continually create new knowledge. The opportunities to do so may come from solving a particular problem, for example, reducing the recharge time for a battery pack in a particular cell phone configuration. The opportunity may also come from identifying major emerging opportunities, for example, the explosive growth of market for cell phones in China and India. To make this happen, organizations must create knowledge environments that facilitate the discovery and action in the new competitive space through participation of partners and flexibility in management processes. This creates value for the company, its suppliers, and its customers.
Firms in a business system that participate as partners have the added advantage of shared management. A partner will have other partners to rely on to provide expertise in needed areas. Decisions can be made jointly after thorough discussion. This feature of shared decision-making can also be a disadvantage when a quick decision is needed. Partners must consult with each other on significant issues. Partners have the advantage of appointing a certain partner as managers of the business. They can be delegated the authority to make certain decisions by themselves.
Shared organizational management by business partners enables purchasing management. This refers to all activities necessary to manage supplier relationships in such a way that their activities are aligned with the company’s overall business strategies and interests. It focuses on structuring and continuously improving purchasing processes within the organization and between the organization and its suppliers. For example, before applying to be a Volvo supplier, an interested supplier must understand and agree on Volvo’s core values. This helps to eliminate any misunderstandings on the quality of products that the company offers. This benefits the company, its selected suppliers and creates value for its customers.
In the business system, shared organizational management by firms in a business partnership enables the development of customer loyalty. Customer relationships are built on the basis of trust. Repeat business gets generated only when customers believe their suppliers and perceive them as creating more value. Loyalty is created only when the customer perceives fairness, equity, and transparency in his or her relationship with the seller. This is possible with a shared organizational management by businesses in a partnership agreement because all parties involved create strategies that improve customer relations, ensuring that they remain loyal to the organization. This generates more profits for the organization.
Business partnerships require a low cost of organization. There are no minimum requirements for starting a partnership.
The startup costs, including any required state filing fees, tend to be lower than those for corporations are. This in itself is a great advantage for small businesses wishing to form business partnerships. Additionally, the low cost of organization ensures that the partnership business has enough resources to conduct numerous transactions with many suppliers. This means that the supply of any needed raw materials is constant. This ensures that the production of goods or services goes on smoothly without hitches. For the company’s consumers, this is a great advantage for them because the production of goods or services will be relatively cheaper. This means that consumers will have access to the products or services at a relatively cheaper price as compared with other organizations, thus benefitting the organization, its suppliers, and customers.
In the business system, business partnerships enable the partner organizations to raise capital easily. Because two or more firms contribute financial resources, business partnerships can raise funds more easily for operating expenses and business expansion. The partners’ combined financial strength also increases the firm’s ability to raise funds from outside sources. This ability of a firm to raise capital easily is an advantage for nonfinancial stakeholders such as suppliers, customers, employees, and the community in which the firm operates. They have no direct monetary stake in the company and no direct influence on the firm’s financial policy. This means that they have no decision or voting power. They only have a state in the firm’s financial health.
Nonfinancial stakeholders are interested in the firm’s investment options because they can be hurt by its financial difficulties. Specifically, a firm’s capital structure choices can affect nonfinancial stakeholders by affecting the probability of default on their explicit and implicit claims on the firm and by influencing the firm’s production and pricing decisions. Consequently, firms in partnership may be forced implicitly to take the interests of their nonfinancial stakeholders into account in formulating financial policy. The capital structure of a business partnership can serve as a signaling device to these nonfinancial stakeholders and thereby affect their behavior. A firm’s financial condition can affect how suppliers and customers perceive its reliability.
Therefore, the ability of a business partnership to raise capital easily from many different sources means that its suppliers and customers trust its ability to make profitable business for all involved parties. This benefits the firm and its suppliers, and consequently, creates value for its customers.
Firms participating in the business system as partners combine a variety of diverse skills and expertise. Partners share the responsibilities of managing and operating the business. Combining partner skills to set goals, manage the overall direction of the firm, and solve problems increases the chances for the partnership’s success. Ideal business partnerships bring together people with complementary backgrounds rather than those with similar experience, skills, and talents. This enables the firm to view the diversity of skills in labor as an asset rather than a cost. These are the skills and expertise in employees that contribute to the firm’s level of productivity. With a business partnership therefore, production of goods or services is of a high quality. This benefits the organization and creates worth for its customers, thus leading to its success.
Firms that participate in the business system as business partners increase the size of the organization. In businesses, size matters. Corporations that are big enough to control significant shares of sales and profits in one or more industries and enjoy tremendous financial and organizational advantages over small businesses. Financially, large revenue streams mean big budgets, enormous purchasing power, and great bargaining advantage with suppliers of goods and services. Organizationally, the bigness of an organization facilitates the development and application of specialized human and technological resources. Additionally, this enables the organization to determine its future sourcing strategy for every spend category.
The organization is able to decide whether to reduce or expand its supply base, and where the suppliers should come from. The company is also able to decide on the type of relationship it would need to pursue with its suppliers. The company is then able to decide on the type of contract it would put in place in its dealings with suppliers. This ensures that the company has a constant supply of raw materials throughout the year. This means that the products and services produced by the company will be of high quality and would meet the consumer demands. This benefits the organization and its suppliers, and creates value for its customers.
In the business system, business partnerships lead to reduced price competition. This according to Bradley means that the decisions made by one company affect and are affected by decisions made by other firms. If one company decides to reduce its prices, it will force other companies to do the same. Modern industries remain full of aggressively price-slashing firms. Modern corporate capitalists are compelled by the market to pass the benefits of productivity improvements to customers through price cuts. Failure to do so would mean that rival firms would soon copy an organization’s innovations and lower their prices, thus forcing them to run out of business. Full-fledged price wars are now so anathema that, even in the most competitive industries, corporate wisdom is to try anything and everything before entering into even a single round of unrestrained price-cutting.
Corporate capitalism means price inflation. From a corporate capitalist’s perspective, such steady, mild inflation is a good thing. Major firms can bank on being able to charge a bit more for next year’s model than for this year’s and on taking in a bit more revenue for the same output. This is achievable when corporations form partnerships (Dawson, 2003, p.24).
The bargaining power of a firm over its suppliers is crucial because it can improve the price, quantity, reliability, and timely delivery of raw materials. The company’s power increases the more the inputs are commodity items and are subject to price competition. The company, rather than the supplier should add the value. For example, a restaurant buys commodity items like vegetables, meat and drinks, all of which are readily available and subject to intense competition. It has power over suppliers and adds the value by processing them into expensive meals. This also creates value for the consumers because the company will have the ability to produce top quality products.
Business partners enjoy income tax benefits. The net income or loss of the partnership is passed through to the associates, according to the partnership accord. The partnership is required to file a partnership return form annually with the revenue services in their countries, but no income tax is owed by the partnership itself. Rather, the partnership’s return indicates the income earned by the partnership and allocated to the individual partners. A partnership is not taxable as a separate entity. The partners on income derived from the partnership pay a single tax. Additionally, because the income of the partnership flows through to the individual partners, if the partnership experiences a net loss, each partner’s share of that loss may be written off on the partner’s individual income tax return.
Conclusion
A business partnership is an association of two or more parties engaged in a business enterprise where all parties involved share the profits and losses equally. This type of association creates benefits for the organizations involved and its suppliers, thereby creating more value for its customers. The minimal formalities required in starting a business partnership enable the company to deal easily with its suppliers without major red tapes. This enables the company to produce products and services in a much quicker way. Partnerships enable flexibility in management. This ensures that only the targeted suppliers are selected for business partnerships. There are many more benefits of businesses joining in partnership as seen from the points above, all of which enable the company to make profits and create value for their customers.
References
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Benefits of Business Partnerships for Organizations, Suppliers, and Customers. (2016, Mar 08). Retrieved from https://studymoose.com/business-partnerships-and-their-benefits-to-organizations-suppliers-and-customers-essay
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