A partnership is a form of organization where two to twenty persons are associated to operate a business entity with a view to earn profit. Each member of such a group is individually known as ‘partner’ and collectively the members are known as a ‘partnership firm’.

In order to avoid misunderstandings about how profits/losses are shared, the responsibilities of each partner, and other ownership, management, and operating decisions the partners usually have a formal legal partnership agreement which sets out the rights and obligations of each partner.

Some factors to consider in a partnership deed

-The number of partners needed

-Capital invested by each partner

-Interest on capital paid to each partner

-Profit or loss sharing ratio between or among partners

-Salaries paid to partners

-Admission of a new partner

-Dismissal or withdrawal of a partner

Advantages of Partnerships

-Easily formed

-More people to contribute capital than sole trader

-Greater continuity than sole trader

-Expenses and management of the business are shared

Disadvantages of Partnerships

-Generally unlimited liability of partners

-Possible disagreement among partners

-Each partner is liable for the debt of the business

-Membership limit of twenty partners may sometimes restrict the capital resources of the business depending on the nature and scale of operations

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