According to the Partnership Ordinance, Chapter 38 of the Laws of Hong Kong, a partnership is a relationship between persons who jointly carry on a business for profit. A partnership is a business entity formed by two or more partners.
A characteristic of a partnership is that each partner is an agent for the business and for all other partners. The conduct of any partner in the course of business binds the business and all other partners. Therefore, the partners must share jointly and severally in all the debts of the partnership.
Forming partnerships is also simple. However, since a partnership involves cooperation and rights between the partners, the partners should first enter into a contract. The contract can be drawn up by the partners themselves, or can be drafted by a lawyer after negotiation between the partners. Although an oral agreement is also a kind of contract, entrepreneurs should draw up a written contract to avoid disputes over the rights and obligations of partners in the future.
Because the partners have enormous obligations to themselves and the partnership business, it is best to draw up the contract before the partnership is formed and the business begins operations. The contract should include the following—
Formation date and name of partnership
Partner’s name and particulars, ownership ratio and investment amount
Role, work, rights and obligations of partners
Method and proportion of profit and loss sharing, and the treatment of partnership property
Partner dispute resolution
Mechanism for existing partners to exit and new partners to join
Conditions and methods for dissolving the partnership
Partnership is a mode of operation in which capital and people are combined. It is certainly better than a sole proprietorship in terms of availability of resources. However, partnerships also have their drawbacks. Since a partnership involves multiple partners, lack of communication, differences of opinion or even mutual mistrust between partners can significantly disrupt business operations and may lead to the dissolution of the partnership. The risks of a partnership mainly stem from the trust between partners and the trust relationship with the business, as well as its characteristic of unlimited liability to partners. Liability arising from wrong business decisions of a partner must be borne by all partners without limitation. Entrepreneurs are advised to think carefully before joining a partnership.
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