HOW TO PROPERLY FORM A PARTNERSHIP.
“Teamwork makes the dream work”, this quote not only encapsulates the whole essence of the term partnership but also reiterates the expediency of partnership in the world of business today.
A partnership is a type of business venture in which more than two individuals/organizations with the same business goals come together, pooling resources (assets, equipment etc.) and/or ideas in order to achieve their collective goals and ambitions.
Partnerships as a vehicle for business has been in existence since the medieval times and has helped to eliminate most of the challenges that sole-proprietors had to contend with in the course of running successful businesses. Some of these challenges include: inadequate human resources, lack of substantial capital, a limited possibility of continuity and expansion etc.
While the benefits of forming a partnership are somewhat endless and cannot be over-emphasized, it is not without its cons. So many people have been victims of failed partnerships and lost their companies as well as money in the process. Therefore, it is important to know how to properly form a partnership as the consequences of lacking this requisite knowledge can be dire.
Over the next couple of paragraphs, we examine some of the prerequisite steps to properly forming an effective partnership.
First and foremost, the individuals/organizations intending to form a partnership must be able to answer this obvious question; why form a partnership? The answer to this question can help parties deduce how their individual capabilities, if synergized, would be able to profit the partnership and ultimately lead to the achievement of their collective goals.
Next up, the type of partnership to be formed must then be decided upon. There are several types of partnership to consider, however, for brevity sake, we will only mention the three common types. They include: general partnership (GP), limited partnership (LP) and limited liability partnership (LLP).
In addition, for the safety of both parties involved, a partnership agreement needs to be drafted, signed and registered.
A partnership agreement is a legally binding document (contract) with stipulations (profit and loss sharing, responsibilities of partners etc.) therein which are meant to be strictly adhered to by business partners.
A partnership agreement should contain; the names of the business partners and firm; date of commencement of the partnership and how long the partnership will last; the partnership’s capital base; account of the partnership; profit and loss sharing ratio; as well as an arbitration clause.
As earlier stated, the benefits of partnership cannot be over-emphasized, however, the caveat to these endless benefits remains that it (partnership) has to be done properly.
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