Identify and explain any FOUR (4) characteristics of a partnership. A partnership means a business is founded by two or more individuals, for example like small businesses which including retail or services business. There are certain characteristic for partnership, the first characteristic is partnership is limited life. Partnership may only established in certain year based on the partnership agreement. Partnership is easy to be terminate if one of the partner is death, bankruptcy or do not carry out certain responsibility if there is no such agreement is made.
When a partner is being withdraws or added, the business should make a new partnership agreement if they wish to continue operate in partnership. This partnership’s business can be continue if with proper provisions and termination or withdrawal of partner in a partnership will not bring a big impact toward ongoing business operations. In a partnership, partners are agents, so that it is mutual agency. A partner may legally bind to the partnership agreement that in line with the partnership’s operations.
Before start a partnership, it is very important to know their potential partnerships is because most partnerships agreement create unlimited liability for its partners. A partner may limit another partner’s ability enter into contracts on the company’s behalf, however this limitation is only applies if the third party is aware of the limitation. It is their responsibility to inform third parties regarding the ability of their partner which is limited enter into contracts. Third, partnership is unlimited liability, this is because partners involved may use their personal assets to fulfill the partnership debts when the partnership cannot achieve its obligations.
A partner may held individually for liable to the payment of creditor if another partner is insufficient assets to meet the share of the partnership’s debt.
General partnership is mean a partnership which all of the partners are individually liable. There are two classes of partners in limited partnership, it is happened when investors do not want to risk their asset and do not actively involved in the business. A limited partnership must include at least one general partner who maintains unlimited liability. The liability of other partners is limited to the amount of their investments. Therefore, they are called limited partners.
Besides that, partnership is ease of formation when compare to other business because it is less requirement to start up. It is also relative lack of regulation due to govermental regulation. Reporting requirement are mainly in written form that cater for corporation. Although the number of sole proprietors and partnerships exceeds the number of corporations, the level of sales and profits generated by corporations are much greater. Decision making is tend to work well among partnership, if there is large number of partners that involved in business will make the decision making process become much more difficult.