Many entrepreneurs who happen to start a business with either family members or friends often take the partnership route. Unlike the sole proprietorship model of business which is solely owned by an individual, the business partnership entity is owned by two or more persons.
Some small business owners decide to go for partnership entity rather than forming a corporation because of its flexibility. A business partnership is an association of individuals working together in a business as joint owners.
Business Partnerships are divided into two categories. They are:
General Partnership: Members of this kind of partnership are subjected to unlimited liability arising from unpaid debts of the business. If the business cannot pay its debt, the creditors can come after the personal assets of the general partners.
Limited Partnership: In this case, a member is only liable to his percentage stake in the business. This means that if you own 25% of the business, you are liable for only 25% liability of the company. A business partnership must have one or more general partners before limited partnership is considered.
Other terms to know in business partnerships are:
Junior Partners: These individuals who are in the business as limited partners. They own rights to the profits of the business, but they do not assume major responsibilities or participate in the top management of the business.
Dormant Partners: These are individuals that play no active role in the business. They are also not known to the public. They are preferably called sleeping partners.
Secret Partners: These are individuals that play active role in the business but want their identity kept secret from the public.
Senior Partners: These are the general partners of the business. They play major roles and are involved in the top management of the business.
As general partners of a business, you have the right to:
1. Share in the partnership assets if the partnership agreement is terminated.
2. Participate in the management of the business.
3. Go through the terms of the agreement.
4. Examine the financial statements.
For those who are not too enlightened about business partnerships and its workability, i hope you have learnt something today. Till i come your way again, remain blessed.