How does Partnership Work?

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A partnership is a type of business where the owner is more than one individual who is responsible for the performance and administration of the organization. All partner owners contribute their share (funds) to start a business, add to everyday operation, and equally share the profits amongst each other. 

The partners decide to start a business based on the terms and conditions registered on an agreement. This document that mentions all agreement terms is known as ‘Partnership Deed’. 

Let’s understand what is partnership deed?

Partnership Deed Meaning

A partnership deed is a legal contract between the partners of the firm. However, it is not compulsory to do partnership deed to run the partnership firm. This document outlines all details related to the position, responsibilities of each partner, their rights are mentioned.

Benefits of Partnership

A business partnership is forming a legal relationship with the help of agreement between multiple individuals. Few benefits of collaboration in business involve below points:

  • Investing money in a joint business or purpose
  • Sharing each other experiences and skills
  • Sharing same ups and downs of profit and loss

How does the Partnership Work?

In business, there are two types of partnership. Namely:

  • General Partnership –  It is formed when two or more individuals agree to run a business and make profits. Generally, no written agreements are made in this partnership but share all joint and various liabilities of the partner.
  • Limited Partnership –  The partner invests money but does not operate or involve themselves in running a business. This partnership is formed legally and by creating an agreement.
  • Limited Liability Partnership – Here, all partners have limited liability. The partnership is formed by a group of professionals who want to use their sources and save money by sharing space.

Types of Partners in a Partnership

Listed below are the different type of partners depending upon the type and level of partnership:

  • General and limited partners –  General partners manage and participate in the partnership and also have liability for debts. Whereas, limited partners invest in the business but do not interfere in the management.
  • Salaried partners and Equity partners –  In partnership, some partners are paid salary, while the equity partners have a share in the business.
  • Different levels of partners – Here, the job role, responsibilities, investment, degree of inputs may be different. 

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