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What is a Partnership?

What is a Partnership?


What is a partnership?

• Legal arrangement in which 2+ persons called partners join together
• They share profits and losses

What are some advantages of a partnership?

• Both partners can bring together greater financial resources
• Combines abilities of owners and the order base of skills
• Simple to organize, required to register with the firm in the provincial government
• Make decisions without having to involve or report to a wide group of people
• Partnership does not pay its own income tax and avoids complications of double taxation

What are some disadvantages of a partnership?
• Limited life, meaning that it can be terminated by law if any of the partners dies, goes bankrupt or becomes mentally ill
• Most partners have unlimited liability: Meaning every partner is liable for the debts of the partnership
• They have mutual agency, which means all partners are bound by the actions of any of the partners. If one of the partners makes a poor decision, the others cannot say that they are not responsible.

What are the types of partners?

• Sleeping partner:
Contributes capital but does not partake in the day-to-day activities

• Limited partner:
His/Her liability is limited only to the capital contribution to the business

• General partner:
Unlimited liability, and usually manages the business. Might have to sell personal assets to pay off any debts

What should be included in the partnership agreement?
Basic info:
- Name and location of the business
- Purpose of business
- Date of Inception

Specifies relationship of partners:
- Names and capital contributions of partners
- Rights, duties, and salary of partners
- Basis for sharing net income/loss

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