Partnership:

In some respects the partnership is the extension of the sole proprietorship but designed to include more than one person. It is defined in law as "an association of two or more persons who are the co-owners of the business". The authority for its creation rests in the common law "right of voluntary association".

There can be no partnership without the expressed intention of all partners. The legal basis for the partnership is usually a written document called the Articles of Association. The law in most countries recognises two forms of partnerships: The general and unlimited partnerships.

Forming the partnership:

Basic to all partnerships is an agreement of intent which may be oral, implied by actions or written down. Partnership Agreement—the provisions agreed upon by partners are written down and form a partnership agreement. A common partnership agreement will have the following elements:

1. Name of the partnership
2. Names of the partners
3. Location of business
4. Addresses of partners
5. Nature of business
6. Intended duration of business
7. Amount of contribution, either cash or otherwise made by each partner
8. Amount of time each partner will devote to the business
9. Provisions for salaries or drawing account for partners
10. Dissolution of profits and losses
11. Duties/responsibilities of each partner
12. Procedure regarding the way in which the books are to be closed upon death or withdrawn by one of  the partners.
13. Special dissolution procedures
14. Methods of resolving disagreements
15. Use of life insurance to purchase protection for surviving partners.

Advantages of partnerships:

In some respects the partnership is like the sole proprietorship therefore enjoys similar advantages for example few legal restrictions.

Others:
(a)  Partners are able to raise more capital as each chips in.
(b)  It has the advantage of management skills as each partner has special competence.
(c)  Each partner brings different ideas into the partnership so they can complement each other.

Disadvantages of partnerships:

The partnership has the following disadvantages:

(a) The chief weaknesses of the partnership is personal liability of each partner. If for instance one partner enters a contract that forces the firm to be bankrupt, all the partners are liable to cover the debts, i.e. each one of them can be followed regardless of whether he/she is the one who entered into the contract. The decisions made by any partner are binding to the others.

(b) Lack of continuity:
The death of a partner dissolves the business—also the disability of a partner may force an end to the business. The acceptance of a partner to buy the interest of the dead partner is not always easy.

(c) Frozen investments:
In case of one partner wanting to leave, it may be difficult for him to withdraw his funds from a going concern. The remaining partners may not have enough money to purchase the shares of the departing partner, or they may be unable to agree on taking on a new partner who could supply the funds. It may also be difficult to agree on a fair price for each partner's shares. Therefore before entering a partnership one must realise that withdrawal of money could be a problem.