In business terminology, a partnership refers to an association of two or more enterprising individuals who want to their combine their individual resources in terms of labor, land, capital and entrepreneurial skills in a lucrative business venture. In the process, they agree to share the risks and the benefits arising from this business venture mutually amongst them as per a specific agreement, which may be written or oral. However, it is prudent for enterprising entrepreneurs to have a written agreement defining the terms and condition of the business venture they are about enter into along with the responsibilities, duties, liabilities and contribution of each individual partner.
Anura Leslie Perera, a reputed expert on successful and effective business partnerships clarifies that unlike other forms of business entities, individuals who agree to became associates of partnership business face a different set of challenges they must overcomes. In this form of business entity, it is imperative for the partners to negotiate the spheres of responsibility, levels of give-and-take, succession, risk-taking ability, lines of authority and capital contribution among themselves. Moreover, these individual partners need to discuss among themselves how they intend to evaluate profits or loss of the partnership business and distribute the same amongst themselves mutually to avoid unnecessary conflict while conducting the business. This is essential to the smooth running of this form of business entity.
This prominent expert on partnership businesses goes on to say that this form of business organization is very attractive for enterprising individuals who are able to combine their individual monetary and non-monetary resources, entrepreneurial skills and talent for their mutual benefit. In a partnership form of business entity, it is essential for every individual partner to be compatible, honest, have genuine and mutual respect for each other and recognize each other’s unique entrepreneurial skills. To ensure the financial success of the partnership venture, each individual partner needs to have the same level of motivation in achieving the objectives of the business, a high level of operational efficiency and competitiveness in the market.
In a partnership form of business, every partner acts in good faith as an agent in carrying on the business of the partnership firm to achieve the common monetary objectives of the individual partners. In this endeavor, it is essential for all the individual partners to remain faithful to each other and render true accounts to each other. Moreover, it is the moral responsibility of each individual partner to indemnify the other individual partners to partnership firm or any third party for any loss that result in his/her willful neglect or fraud.
Anura Leslie Perera further stresses that in many countries governments favor partnership over other form of business entities like corporate entities and corporations with regard to taxation policies. This is especially so as these governments are able to deduct taxes before the partners distribute the operating profits of the business amongst themselves. However, depending on structure of the partnership business and the market within which it operates just as the partners enjoy more monetary profits, they are also liable to the risks of the business.