Partnership: Nature, Profit Sharing, Salary, Agreement - Essay.

Discuss the following:

1. If your group formed a partnership to carry out the business of your major area of study, how would you determine who was the senior partner?

2. On what basis can you agree to share profit? Would this be affected by the amount of capital each partner contributed or would you share profit evenly? Would you pay interest to the partners based on their capital contributed?

3. Would you consider paying each partner a salary that reflected their epertise, experience or ability to generate business for the partnership? If so, how would you determine the impact of such factory on the salary of each partner?

4. What other factors would you include in a partnership agreement?

Nature of Partnership

A partnership can be rightfully defined as a formal agreement which takes place between two or more parties in order to manage the business or a particular task in hand. There are a large number of partnership agreements available at hand like the partnership where the liability of the partners is limited or where the liability of the different partners is unlimited. The report will be discussing various facets of the partnership which will then be used in order to decide upon the nature of the agreement and related criteria.

1. The nature of the partnership is decided at the time of the partnership agreement. In case any group is formed, one would be required to decide the senior partner of the group. A senior partner can be rightfully defined as a partner, whose involvement which means the risks, rewards, authority, work load and the responsibilities are greater than that of the other partners (Capaldo, Izurieta and Sundaram 2016). The senior partner has nothing to do with the age of the partner but it is largely concerned with the level of involvement that the partner is willing to put into the designated business or the task in hand. The selection of a senior partner may be done by the different partners themselves. However, the manner in which or the criteria on which the choice of the senior partner is made is as follows:

• Based on performance: The senior partner may be decided on the basis of the performance of the particular individual. If the individual is a good performer, he might be made the senior partner.
• Based on experience: When an individual or a group member, is more experienced than others than he is made a senior partner because this experience shall assist the person in performing well.
• Based on willingness to take the responsibility: The senior partner who is chosen must be willing to take a responsibility of the entire group or the task (Cohen 2017).
• Good leadership skills: The senior partner may be chosen based on good leadership skills so that he is able to lead the other members of the group.
• Good communication skills: The senior partner may also be chosen based on his good communication skills.

Hence, in order to choose a senior partner among a designated group, certain criteria’s as stated above might be taken into consideration.

2. Profit sharing forms an essential part of the business and any firm which wants to achieve success in the long run will be required to ensure that they decide on the terms of profit sharing so that there lies no confusion at the later period of the business (Beatty, Samuelson and Abril 2018). There are various ways in which one can split profits in a business. The most popular ways are as follows:

• Sharing the profits equally: The profits can be shared equally in a group which would then assist the partners in easily dividing the income earned.
• Receiving a base share and splitting the remaining: The second manner in which the profits can be shared in a business is receiving a base salary that may be fixed beforehand and then sharing the rest of the profits equally among the different partners
• Performance based agreed rates: Another method to share the profits in a group or a business is to share it on the basis of the performance of the employees which will be based on a particular pre-determined rate (Murray 2015).
• Or based on capital: Lastly the profit is shared on the basis of the capital which one invests in a business.

The decision of the basis on which the profit might be shared has to be agreed upon by the partners to avoid any confusion. The partners may choose to share the profits based on any one of the following ways however, it has to be mentioned in the partnership agreement. Moreover, if the partners feel that they are bound to receive interests on their capital, they are required to decide this at the beginning of the partnership.

3. Very often the partners working in a business are bound to receive a salary for the services which they are providing to the organization or for the hard work which they are applying behind the venture (Bryson 2016). However, there are various ways in which the profits can be divided among the partners and these ways have been discussed as follows:

• Equal salary: One of the simplest ways of paying the different employees a designated salary is based on equal parameters (Mann and Roberts 2015). This means that all the employees shall be paid their salary equally in order to ensure that all the partners feel they have equal share in the business.
• Based on the contribution: The second manner in which the salary might be paid to the partners is based on their contribution or their involvement in the business. There are other factors which have a strong influence on the decision of the salary share. These factors are as follows:
• Expertise: The more experienced a partner is, it is assumed that the partner is bound to receive a higher salary.
• Experience: If a partner is more experienced then it is assumed that he will be receiving a higher salary based on his past endeavors and capabilities (Beatty, Samuelson and Abril 2018).
• Ability to generate business: Lastly, if a partner is working more for the welfare of the organization then he is bound to receive a higher salary. In addition to this, if the partner is able to get more business for the enterprise then he is bound to receive a higher salary.

Hence, in order to pay a salary to the different employees, factors like expertise, experience and the ability to generate business are required to be considered. However, the ability to generate business is the largest factor impacting the salary decision.

4. A partnership agreement can be rightfully defined as the business agreement which must be agreed upon and signed by all the partners before they begin any operations or before the profits are made. The agreement comprises of all the explicit details of the partnership. Although it is not elementary to form a partnership agreement but for any contingency and to avoid any confusion, it is advisable that a partnership agreement is formed (Allen and Kraakman 2016). The factors which will be included in a partnership agreement can be given as follows:

• The division of the profits: The division of the profits is an essential element which is included in the partnership agreement and decision upon the manner in which the different partners shall share their profits or shall be paid.
• The contribution made to the partnership: The contribution which shall be made by the partners for the business shall also be decided upon in the partnership agreement.
• The decision making of the business: The different decisions which shall be made in a business shall also be decided upon in a partnership agreement so that the work can be divided upon easily (Miller 2015).
• The duties and responsibilities of the partners: Lastly the duties as well as the responsibility of the different partners shall also be decided and included in a partnership agreement in order to ensure that the organization faces no troubles in the future.

Conclusion

Therefore from the given analysis, it can be stated that as partnership can be described as an agreement which is made between the different partners, it is crucial to include an agreement and decide upon all the factors in advance in order to ensure that there exists no confusion with respect to it in the future.

References

Allen, W.T. and Kraakman, R., 2016. Commentaries and cases on the law of business organization. Wolters Kluwer law & business.

Beatty, J.F., Samuelson, S.S. and Abril, P.S., 2018. Business law and the legal environment

Bryson, C., 2016. Engagement through partnership: Students as partners in learning and teaching in higher education. Taylor & Francis

Capaldo, J., Izurieta, A. and Sundaram, J.K., 2016. Trading down: unemployment, inequality and other risks of the Trans-Pacific Partnership agreement (No. 16-01). GDAE, Tufts University.

Cohen, E., 2017. CSR for HR: A necessary partnership for advancing responsible business practices. Routledge.

Mann, R.A. and Roberts, B.S., 2015. Business law and the regulation of business. Nelson Education.

Miller, R.L., 2015. Business Law Today, Standard: Text & Summarized Cases. Nelson Education.

Murray, J., 2015. What is A Business Partnership? US Business Law: Tax Categories.