The Partnership

Abstract

One form of organisational structure of a business is the partnership which occurs where two or more people carry on a business in common with the intention of earning profits. No particular formality is necessary to create a partnership but it is usual for an agreement, either verbal or written, to be made. Even if there is no agreement, where two people act as if they were in partnership they incur legal recognition as if a partnership existed and enjoy the benefits and incur the liabilities which that entails. Following are some of the reasons for the formation of a partnership:

• (1) Pooling of resources. A sole proprietor, having exhausted all his available sources of finance, will be unable to expand his business. The pooling of his own resources with one or more other individuals will provide the finance with which to expand.

• (2) Complimentary expertise. Where the business requires expert knowledge it may be convenient for one partner to specialise in a particular area. For example, a partner in an accountancy practice may specialise in liquidations while another specialises in taxation.

• (3) Economic advantages. Where there are several individuals carrying on similar work there may be economic advantages of scale, such as the reduction in administration or overhead costs.

• (4) Provision of a service. Where the business is one in which it is essential to provide a continuous service it may be convenient to form a partnership which can evenly spread the workload, e.g. a medical or veterinary practice.