A business partnership is formed when two or more persons or owners work together to create an enterprise. One civil law definition states that a partnership is a contract between individuals. These individuals agree to form and conduct business as an enterprise, with each individual contributing to the common goals of the enterprise partnership. In order for a successful partnership to exist and prosper, common goals must be stated within a document. This document is frequently known as the Articles of Partnership. Some of the topics addressed in the Articles of Partnership are areas of responsibility, lines of authority, evaluation and distribution of success, lines of succession, and overarching goals. The role of each individual in the partnership is also defined. Parties to the agreement can be either general partners or limited partners. This is wholly dependent upon their expected contributions to the enterprise.
The labor involved in making the enterprise profitable or successful is shared by each person or entity that is a component of the partnership agreement. Partners or co-owners are responsible for sharing profits and losses. Limited partners in an enterprise may share a smaller designated portion of the profits of that enterprise. The limited partner may benefit because of the reduced portion of liability in the enterprise. Many limited partners relinquish direct management of the day-to-day business of the enterprise in exchange for reduced liability in the partnership’s debts. Limited liability partners all share some degree of limited liability of the enterprise. Their liability concerning the enterprise is directly proportional to the amount of their investment in the partnership. A general partnership means that each person or entity involved in the enterprise is involved in the management of the business. A general partner is also personally liable for the debts of the organization. General partners are also strictly liable to any third party that may be injured by the partnership. A general partner is often the person who operates the business of the partnership. For instance, the artist who produces original works of art for a gallery may also be a general partner of that gallery. The accountant who manages the money for the gallery may also be a general partner. Both the general partners are engaged, on a daily basis, in the business of the partnership, although they are individually involved in completely different activities. Both general partners share in the profits of the gallery business. They also share in the liabilities and debts of the gallery business, based on their share of investment in the business. If the artist has a 60 percent share of the gallery and the accountant has a 40 percent share, those percentages also define their portion of the profits and liabilities of the gallery.
Various civil laws describe a partnership as an entity comprised of two or more legal persons who are carrying on a business in common, with a view to profit. The definition further states that the partnership is not an incorporated or joint stock enterprise. Some variations of civil law state that a partnership is a relationship existing between individuals who have agreed to combine labour and business skill, then share in the profits. Civil laws regarding partnerships are frequently a function of local governments, rather than federal. However, the partnership may be responsible to the federal government for income taxes and other taxation.
The definition of partnership is subject to interpretation based on cultural practices. For instance, Islamic law sees a partnership in a completely different light than one of the United States might. Many definitions, throughout the world, were written or developed centuries ago and have not been revisited. Other countries may revise their definitions and standards of a partnership on a much more frequent basis.
A successful partnership is largely defined by the people or entities contractually involved in that partnership. Success can often be determined by the compatibility of the partners. A business partnership between two or more people who do not agree on general operating principles is less likely to succeed. One must carefully choose a partner in such a business relationship. It is of paramount importance that parties to the partnership share the same ethical values.
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Article Added on Thursday, June 20, 2013
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