Meaning of Partnership

Sometimes, business suffers from hardships such as lack of capital, resources, and lower access to the market. Therefore sole proprietorship lacks in business and prefers forming a partnership to overcome these situations. Partnerships allow partners to share their opinion, and individual resources and help to expand a business. It has various types of partnerships. It can even support two individual businesses working together to expand the market. It can even invite capital into partnership, which will support the business in a financial aspect and the profit share will be distributed among the partners according to the investment shareholding. 

Partnership: Definition

Before understanding the concept of a business partnership, it is important to understand the partnership definition. So, what is the definition of partnership? It is a formal agreement among two or more parties for managing or operating a business and its profit share. 

Therefore, the meaning of partnership stands for, an arrangement where all partners share equal profit share and market share in a business and make the business run together with the partnership.  Partnership for a business can be divided into various categories. Though some of them make a formal meaning of partnership, some of them are informal and silent partnerships. 

A partnership can be set up jointly by multiple parties, which can be a nonprofit organisation, government or individual parties, and other business parties as well. In a general partnership, all the parties share all the legal and financial liabilities together, and the profits too equally. In a limited liability partnership, at least one partner should be general and take all the liabilities, and other partners can be silent partners who will not either take any liabilities or gain any profit share. 

Partnership: Meaning in terms of Business 

In the aspect of an individual business, the meaning of partnership differs by its type.  In the business aspect, the partnership is not limited to equal ownership of partners in the same business. But the discussion can be far more interesting if we think about its types. Along with responsibility, management, and profit, partners also take responsibility for losses equally.  There are three types of partnership, where each partnership style differs from the other from a business perspective. 

• General partnership

A general partnership is also known as an equal partnership, where each partner shares an equal share of profit and investment in a business.  Equal workload, liabilities, and profit from equal paid partnerships are the ethics of this kind of partnership. 

• Limited Partnership

A limited partnership is sometimes defined as silent partnerships. It allows partnership from outside investors, but the liabilities, responsibilities, and shares maintained are limited according to the contribution. This partnership is more complicated to understand, and in ownership and decision making, the partners need to be more flexible in terms and conditions of investments. 

• Joint Venture 

A joint venture is a business structure, where short-term projects or alliances bring down multiple partners involved together as one project.  If the venture performs well, then the partnership works as a general partnership, either the partnership breaks or is shuttered. It is also known as a trial partnership as well. 

Importance of Partnership in Business 

• Extra set of hands to work with
• Less financial burden
• Benefits of additional knowledge and resources
• Few tax forms and paperwork
• Better decision making
• Control ad combined ownership

Features of Partnership

Business partnerships have several features, such as

• Agreement

The definition of the partnership itself describes that there should be an existence of a proper agreement between the partners to work together and about sharing profit among the partners. The agreement can be on oral sharing or can be in written form as well. Though written agreements are a more formal way of partnership and can be called partnership deeds. 

• Profit-sharing

A partnership does not exist if there is no profit-sharing in the firm or organisation. The share of profit is also shared by employees, but that is not a partnership. They are getting their salary in terms of working. But a partnership includes profit sharing according to the shareholding in terms of the agreement. 

• Business

There is no existence of partnership in charitable activities or nonprofit organisations. Therefore, a profit motive business should exist for partnership. 

• Principal agency 

The principle of business partnership claims that all the partners are agents of each other. A partnership in business may be conducted by all partners or by individual partners, on behalf of others. This relationship of partners is the principle of agency. 

Conclusion 

Getting into a partnership arrangement does not mean it will reduce the burden and duties of a business to run. All the partners should work and take responsibility together to run a business successfully. Additionally, the partnership will add additional resources for the business to grow.  Aligning with patterns will strengthen the structure of the business, and provide more opportunities. 

You should now have a clear idea of partnership definition, partnership meaning in business, its types, needs for making a business developed and profitable along with the different contributions.