28 Mar 2017

PARTNERSHIP

PARTNERSHIP

TURNING FRIENDSHIPS INTO BUSINESS

Kato and Juma met and at university and they grew fond of each other. Because of the strong friendship they had, they agreed to enter into business together after graduating and in effect enter into a partnership.

After graduating, Kato and Juma started discussing going into business together and sharing ideas. They had capital with them but could not agree on what to do together because of their differing Interests. They want guidance on what they can do that will benefit them.

 

 WHAT IS A PARTNERSHIP?

A partnership is a relation which exists between people carrying on a business in common with the aim of making profits. The key terms in this definition is that there are two or more people, doing business together, the primary reason for the business is profit.

A Partnership can be formed even when the word “partnership has not been used. The moment people agree to “buy land together and grow cassava on it” they are agreeing to enter into a partnership, even when they don’t write any contract or agreement a partnership will exist.

HOW TO IDENTIFY A PARTNERSHIP

In case you may be in a partnership without knowing it, these are the ways of identifying whether you are in a partnership:

1. The relationship MUST exist between two or more parties; this means that one person can’t form a partnership by themselves.

2. The partners must carry on business together/ the same business. This means that both are contributing to the same business. It cannot be a partnership if one the partners are carrying on different businesses even if they are saving their money together.

3. Making profits must be the aim of the business. This does not mean that profits must be made, only that it must be the primary reason for the partnership. For example it would be misguided to form a partnership for the purpose of helping people acquire mosquito nets, it would make more sense to create an NGO or a CBO for that purpose. A partnership carrying on similar business would be better suited to selling mosquito nets for profit.

NB: For a partnership to exist, all the three requirements mentioned above must be present.

 

WHAT CAN JUMA AND KATO DO?

In order to decide on what to do, Juma and Kato can give thought to the following:

1. Who is providing the most capital whether it is financial or in terms of resources? That person has greater to lose and so it may be necessary for their opinion to be given greater weight.

2. Both parties can agree to concede something to the other party in order to come to an agreement. This is keeping in mind that one cannot always get their way 100%.

3. The time factor is important. Which one of the Partners will be spending more time at the business than the other? If both spend the same amount of time, then which partner is better skilled at the day to day management of the business? This partner may have to take lead on the big decisions.

Always keep in mind that a two headed snake will fail to go anywhere because the two heads will keep pulling the body in opposite directions. Sometimes one has to be the tail in order to let the snake move forwards.

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