PARTNERSHIP (AOP)
A partnership, also known as an Association of
Persons (AOP), is a type of business structure where two or more individuals
come together to carry out a business venture with a shared goal and mutual
understanding. Partnerships are governed by partnership agreements that outline
the rights, responsibilities, and profit-sharing arrangements among the
partners.
Characteristics of a Partnership (AOP)
Shared Ownership and
Management: Partnerships involve two or more individuals who contribute their
resources, skills, or capital to establish and operate a business. Each partner
has a shared ownership interest and participates in the management and
decision-making processes of the partnership.
Agreement and
Contractual Relationship: Partnerships are based on a partnership agreement,
which is a legally binding contract that outlines the terms and conditions of
the partnership. This agreement typically includes details such as the purpose
of the partnership, profit-sharing ratios, capital contributions,
decision-making processes, and dispute resolution mechanisms.
Unlimited Liability:
In a partnership, the partners have unlimited liability, meaning they are
personally liable for the debts, obligations, and legal liabilities of the
partnership. This includes the risk of using personal assets to settle
business-related liabilities.
Shared Profits and
Losses: Partnerships distribute profits and losses among the partners based on
the agreed-upon profit-sharing ratios mentioned in the partnership agreement.
The distribution of profits is typically proportional to the capital
contributions or as mutually agreed upon by the partners.
Joint Decision Making:
Partnerships operate on the principle of joint decision making, where major
business decisions are made collectively by the partners. However, the
partnership agreement may specify certain areas where partners have individual
decision-making authority.
Partnership
Dissolution: Partnerships may dissolve due to various reasons such as
expiration of the partnership term, mutual agreement, death, or withdrawal of a
partner. The dissolution process is typically outlined in the partnership
agreement and involves settling the partnership's liabilities, distributing
remaining assets, and terminating the business operations.
Flexibility and
Informality: Partnerships offer greater flexibility compared to other business
structures like corporations. They often have fewer legal formalities, lower
regulatory requirements, and simplified reporting obligations, making them
relatively easier to establish and manage.
Limited Legal
Personality: Unlike corporations, partnerships do not have a separate legal
personality. The partners are considered personally responsible for the
partnership's actions and obligations.
It is important to note that the specific characteristics of a partnership may vary depending on the jurisdiction and the terms outlined in the partnership agreement. It is advisable for partners to consult legal and financial professionals to draft a comprehensive partnership agreement that covers all relevant aspects of the business relationship.