Many small businesses are owned by whanau in partnerships.
A partnership involves a business relationship between two or more people.
Partnerships typically include husbands and wives, de-facto partners and extended family members. Māori organisations can also enter into partnerships to undertake joint ventures.
The main advantages of a partnership are:
- The ability to combine labour, expertise and management skills of the partners
- The ability to combine the financial resources of the partners
- Relatively inexpensive to form
- The increased ability to overcome the disability, sickness or accident of one of the partners
The main disadvantages of a partnership are:
- The partners are personally liable for all the debts incurred and the conduct of the business, (including for the activities of each of the partners)
- The potential for disputes and breakdown between partners
- Difficulties in borrowing money and raising capital
- Potential problems relating to the leaving or joining of partners
- Potential for disputes when the partnership ends
Suitability of partnership structures
The partnership structure may be suitable for husbands and wives, de-facto partners, extended family members or joint ventures.
Many of the disadvantages of the partnership structure can be overcome through the creation of a Partnership Deed.
The Partnership Deed should set out in advance the following:
- The basis for dealing with partner disputes
- The process for partners leaving or joining
- The process for the termination or dissolution of the partnership
- The basis for the sharing of profits and losses
Protection from personal liability can also be obtained through insurance cover and personal assets such as the family home can be transferred to a family trust.
What partners do
They act in a similar way to the board of a company but the Partners make decisions as owners. The Partners' essential role is to lead the organisation safely and successfully into the future.
The Partners will often also carry out many of the day-to-day functions of the business. What functions they perform depend on the type of business and its size. Some partnerships can be very large with hundreds of partners and they can be bigger than many companies. Most however are very small with less than 5 partners and usually 2.
Partners owe duties to their fellow partners to act in the best interests of the Partnership.