Partnership Business Structure

A Partnership business structure is a business structure that allows two (2) or more people to operate abusiness as co-owners and share the profit and loss that result from the business by following the Partnership Deed.

WHAT IS PARTNERSHIP?

Partnership is a business structure in which two or more individuals own the business. Thus, a partnership business consists of two or more persons who agree to combine their resources to form a business. People who combine resources to start a business also agree on how to share risks, profits, and resources.

TYPES OF PARTNERSHIP

We categorise parnenrship dependng on the relationship between partners and on the basis of the level of separation of business and personal assets.

Based on relationship between partners

Depending on the relationship between the business and the business owner, there are two types of the Partnership business; general partnership and limited partnership.

General Partnership

A general partnership is a partnership whereby two or more individuals agree to start and operate business in such a manner that partners share everything equally. For general partneships, all partners have a right to participate in the management of the partnership (unless otherwise agreed).

Limited Partnership

Limited partnership is a partnership form whereby two or more partners agree to start and operate business in such a manner that one partner has control of operations and the other person(s) contribute to and receive part of the profit or loss. A limited partnership is mostly ideal for those running family partnerships who can allow one partner to speak and operate on behalf of the family.

Based on the level of Separation between the Partners and the Business

Separation between the partners and the business refers to the liability structure of the partnership. On this basis of thelevel of separation between partners and the business, there aretwo types of partnership, namely; Limited liability (LLP) and Unlimited liability partnerships (ULP).

Limited Liability Partnership

As the title suggests, a limited liability partnership denotes separation between the business and the owner. In this case, the personal assets are different from the business assets. Thus, an LLP is a body corporate and a legal entity separate from its owners/partners. Under the LLP arrangement, the Partnership is liable to the full extent of its assets, leaving the liability of Partners limited to the Partners’ agreed contribution to the Partnership.

Features of the LLP

The following are the features and characteristics of an LLP.

  • An LLP contains elements of both ‘a corporate structure’ as well as ‘a partnership firm structure’ LLP thus also called a hybrid between a company and a partnership.
  •  An LLP is characterized by organization and operations based on the agreement.
  • An LLP provides flexibility without imposing detailed legal and procedural requirements
  • An LLP  enables professional/technical expertise and initiative that minimizes the financial and business risks.
  • Operatingin an LLP structure, facilitate capacity that results in operational efficiency.
  • The LLP can continue its existence irrespective of changes in partners. It is capable of entering into contracts and holding property in its own name.
  • No partner is liable on account of the independent or unauthorized actions of other partners, thus individual partners are shielded from joint liability created by another partner’s wrongful business decisions or misconduct.
  • Under LLP, Mutual rights and duties of the partners and governed by an agreement between the partners or between the partners and the LLP as the case may be.

Unlimited Liability Partnership (ULP)

Unlimited liability partnership denotes lack of separation between the business and the owner. In this case, there is no clear cut separation between partners personal assets and the business assets. Under the ULP arrangement, the Partners are personally liable to the the liability of the business incase of business and financial risks.

Advantages and Disadvantages of Partnership business structure

Each structure is different from the other and thus has unique advantages and disadvantages. The following are the advantages and disadvantages of operating a business using a partnership business structure.

Advantages of partnerships

  • Partnerships are easier and less expensive to set up compared to companies.
  • Partnerships combine the resources and expertise of the partners to establish and run the business.
  • Partnerships are simple to administer. Profits and losses are shared between partners according to the partnership agreement.
  • The partnership provides more privacy than companies that have to disclose profits to the public.
  • Changing the legal structure is relatively simple.
  • In case of a limited Liability partnership, the partnership may attract external funding compated to a sole propriatorship.

Disadvantages of partnerships

  • For unlimited liability partnerships, all partners together are personally responsible for business debts. Each partner is individually liable for debts incurred by the other partners. This is known as being ‘jointly and severally liable
  • Tax is charged at the personal tax rate. As business earnings increase, so does the tax rate.
  • Partners cannot transfer their ownership to someone outside the partnership unless the other partner(s) agree.
  • Personal differences may interfere with business.
  • For limited partnerships the limited partner takes control of the business which may be to the expense of the other partner(s).

What is a Partnership Deed?

A Partnership Deed is a document that contains the terms and conditions of the partnership. The Deed describes the following items, among others.

  • Partners’ full names
  • Partners’ addresses
  • Name of the business
  • Date of commencement of the partnership
  • Office and address of the business
  • The Nature of business
  • Source of capital
  • Share of profit or loss among partners
  • Drawings allowed to the partners and the rate of interest thereon.
  • Amount of salary and commission, if any, payable to the partners.
  • Duties, powers, and obligations of partners
  • Rights of partners
  • Properties of the business
  • Arbitration in case of disputes among the partners.
  • Partners remunerations’
  • Partnership finance and accounts
  • Procedures when one partner retire
  • Procedures when a partner dies
  • Procedures when a partner becomes insolvent

Below is a sample of the partnership deed.

DEED OF PARTNERSHIP

THIS DEED OF PARTNERSHIP made the……day of October 20… BETWEEN……………………………….of …………………………(hereinafter called “the first Partner”) of the one part and……………………………….of………………………………. (Hereinafter called “the second Partner”) of the other part

WITNESSETH that the first Partner and the second Partner (hereinafter jointly called “the Partners”) shall become partners in the business of dealing in lime on the following terms:-

The partnership shall be deemed to have commenced on the…………………and shall continue until determined as hereinafter provided.

The name of the firm shall be………………………………

The principal place of the partnership business shall be located at…………………………or such other place as the partners may from time to time decide.

The business of the firm shall be dealing with ……………………………………and such other business or businesses related thereto as the partners may from time to time agree upon.

The capital of the partnership shall be contributed by the partners equally, and all profits and losses, including loss of capital, shall also be shared by the partners equally.

The partnership Bank Account shall be operated by both partners, and cheques were drawn on the partnership Bank Account shall be signed by both of them.

The usual books of account shall be kept properly posted up and shall not be removed by either partner from the place of business without the other partner’s consent.  Each partner shall have free access to them at all times and shall be at liberty to make such extracts therefrom as he may think fit.

Suppose any partner out of the two partners shall die during the continuance of the partnership. In that case, his share in the capital assets and profits shall accrue to and vest in his legal personal representative without any payment.

Suppose any partner desires to retire during the continuance of the partnership. In that case, the other partner shall have the first right to purchase the share of the retiring partner in the capital assets and profit of the partnership at a price of the assets, credits, debts, liabilities, and transaction of the partnership {but with taking goodwill into account} and such price shall be paid by the continuing partner to the retiring partner.

Each partner shall be just and faithful to the other partner in all transactions relating to the partnership business and give the other partner a true account of all dealings.

Neither partner shall, without the consent of the other –

(a)  Waive the whole or any part of any debt or sum due to the partners.

(b) Except in the ordinary course of business of trade, dispose of by loan, pledge or sell or otherwise of any part of the partnership property.

(c) Become a bail guarantor or surety for any person or to do or knowingly suffer anything whereby the partnership property may be endangered.

IN WITNESS WHEREOF the parties hereto have hereunto set their hands and respectively signed these presents the day month and year hereinafter appearing.

SIGNED and DELIVERED by the said          )
A AND B  in my                                            )
presence this ……. day of  October, 20… )                  _________________

Name: …………………………………………….

Signature: ……………..……….….…………….

Postal Address: ……….………..…….…………

Qualification: COMMISSIONER  FOR  OATHS

SIGNED and DELIVERED by the said          )
X AND Y in                                                     )
my presence this ….. day of  October, 20..)           _________________

Name: ……………………………………………

Signature: …………………..…….…………….

Postal Address: ……….……….…….…………

Qualification: COMMISSIONER  FOR  OATHS