Advantages of General Partnership

Advantages of General Partnership – A partnership is a business where two or more people, companies, or groups get together and form a team that together conducts business. Two well-known partnerships in business started when (1) William Hewlett and David Packard got together to design a test instrument in a garage, and (2) Bill Gates and Paul Allen cobbled together the MS-DOS operating system, which later morphed into today’s Microsoft Windows. Both of these partnerships later became huge corporations, but they started when two people had a good idea and worked together to turn it into a profitable business. A partnership can be very small (two people) or huge (like McKinsey & Company, a global management consulting firm of nearly 900 partners worldwide). In a partnership, all partners share in the profits and losses, usually at a rate commensurate with their initial investment (or tenure) in the business. One can imagine that in the case of Hewlett-Packard, both Mr. Hewlett and Mr. Packard were equal partners, so they each owned 50 percent of the business. Partnership shares can be determined through a number of different formulas: the amount of money (start-up or investment capital) one puts in, “sweat equity” or hours of hard work, the implicit value of an idea or specific technology contributed, some other type of tangible asset (like a house or garage) contributed to the business, or access to a market (such as an Indonesian company that knows how to sell products to Indonesian customers).

Advantages of General Partnership

Advantages of General Partnership

In partnerships the partners can be equal or unequal. One partner could be a general partner, who has the most at risk if the business loses a lawsuit against it and is forced to pay a penalty. Usually the general partner runs the business and has the most knowledge about the business. Other partners in this case would be limited partners, who would lose only the amount of money or other assets they contributed to the partnership. There are also silent partners who do not have anything to do with the operation of the business but share in the profits and losses.

The benefit of a partnership is that it engenders a team spirit working toward a common goal, a certain degree of collegiality, and a sense of “first among equals” that can foster a sense of pride to belong to an elite group. There are a couple of downsides to a partnership. First, a partnership depends on the mutuality of purpose; that is, if one partner loses interest or is not perceived to be contributing the effort it originally committed to, the relationship sours. In these cases, the partnership is often much more difficult to unwind than in a corporate-type of entity because it is usually the unique contributions of the partners that make the business successful. And second, like a sole proprietorship, the partners are personally liable for any transgressions or mistakes that the partnership makes in conducting business. Thus the partners could end up losing considerably more of their personal assets than they contributed to starting and growing the business.

Other partnerships are formed between two companies. These are often called joint ventures. You’ll see these partnerships between a large company with established technology and another company or person who has something that the company needs (technology or market access or both). One example is when the 3M Corporation (maker of Post-It® Notes among other things) wanted to break into a new market, such as Indonesia. The company didn’t know how to sell its products to Indonesians. So it formed a joint venture with a local Indonesian company that knew the market. Another example is Corning Glass, which has formed partnerships with Dow Chemical (Dow-Corning, maker of silicones), Owens-Illinois (Owens-Corning, maker of fiberglass, roofing material, and insulation), and Samsung (Samsung Corning Precision Glass, maker of specialty glass substrates used in thin film transistor LCDs).

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