PARTNERSHIPS

 

Partnerships are formed in order to overcome some of the drawbacks of a sole trader. They are agreements between 2 or more people (20) to carry on a business together. Usually with a view to making a profit.

The agreement to work together does not create a separate legal unit; a partnership is just a grouping of individuals.

When planning to go into partnership it is important to choose business partners carefully (the errors and poor decisions of any one partner is considered to be the responsibility of them all.) This also applies to business debts incurred by one partner – in most countries there is unlimited liability for all partners should the business venture fail. In the UK, it is possible to set up limited liability partnership. In a limited partnership there can be sleeping partners who do not participate in the management of the company. Sleeping partners have limited liability – in the event of bankruptcy, they only lose their investment, not their personal assets. The reverse of the sleeping (silent) partner is a secret partner – a person who takes part in management but who is not known to the public.

It is usual, although not a legal requirement, to draw up a formal Deed of Partnership between all partners. This would provide agreement on issues such as

voting rights,

the distribution of profit,

the management role of each partner and who has authority to sign contracts.

Partnerships are the most common form of business organization in some professions, such as law and accountancy, medicine, insurance, real estate (limited); small building firms are often partnerships too.

There are the following advantages and disadvantages the partnerships:

 

Advantages Disadvantages

partners may specialize in different areas of business management shared decisions making additional capital injected by each partner business losses shared between the partners greater privacy and fewer legal formalities than corporate organizations

unlimited liability profits are shared no continuity in the event of death of one of the partners not possible to raise capital from selling shares no independence of decision making all partners are bound by the decisions of any one of them

 

 

Public limited company (‘plc’ or ‘inc’)

(7 …….)

It is the most common form of legal organization for really large business.

In a ‘plc’ the capital is divided into shares, which are held by shareholders. Shareholders have limited liability, but they can vote at the Annual General Meeting to elect a Board of Directors. In a ‘plc’ shares are bought and sold freely, for example on the stock exchange.. It CAN RAISE very large sums from public issues of shares. Also the existing shareholders may quickly sell their shares if they wish to.

This flexibility of share buying and selling encourages the public to purchase the shares in the first instance and thus invest in the business.

The shareholders own the company, but they appoint at the Annual General Meeting a Board of Directors who controls the management and decision making.

There are very important advantages Important disadvantages arise however

to the public company status, the such as:

chief of which are:

Advantages Disadvantages

Limited liability Separate legal entity Continuity Ease of buying and selling of shares for shareholders Easier to borrow from banks It can attract specialists and great entrepreneurs

Legal formalities in formation Cost of business consultants and financial advisers when creating such a company Share prices subject to fluctuation(e.g. state of economy) Legal requirements concerning disclosure of information to shareholders and the public(e.g. annual publications and detailed report and accounts) Risk of takeover due to availability of the shares on the Stock Exchange Directors influenced by short-term objectives of major investors

 

Many large businesses in the UK are public limited companies, which mean that the public can buy and sell their shares on the stock exchange.

The minimum share capital is 50 000 pounds.

Most of them are:

large scale national enterprises

departments

chain stores

oil companies

manufacturing