Corporate Law

Corporate Law

Corporate Law

Answer 1

In the case of Nicola and May, it has been stated that they have formed a partnership agreement and are therefore, equal partners in the business. In order to consider whether or not Nicola should opt for incorporation, it is important to first asses the benefits and potential drawbacks that she is facing in a partnership agreement. There are certain features in a partnership that make it easily distinguishable from sole traders as well as incorporated companies.

The first and most distinguishable among these is the number of people that are running the business and who have a direct stake in it. A partnership is formed when there are at least two persons involved in a business venture (Cassidy, 2005, p 33). Unlike sole proprietorships, a partnership is formed through a legal process between at least two persons. There is no limit to the maximum number of partners that can form a partnership.

By entering into a partnership, individual partners of a business can enjoy a wide range of benefits. For example, the burden of running the business is shared by all the owners and this means that they do not have to be solely responsible for all the duties and tasks that they would be if they were sole proprietors (Cassidy, 2005, p 33). In addition to this, in the case of equal partnership, liabilities are shared equally among all partners and this means that there is lesser burden on individual partners in terms of financial liabilities and commitments (Hinchy et al.,2009, p 41).

Another major consideration that must be taken into account in this regard is that there are fewer problems with financing the business when it is a partnership. This is because all the different partners can pool in money whenever the business requires it as they are equal partners in the business venture (Hanrahan et al., 2011, p 38). Another major benefit of a partnership agreement is that the individual partners have their own innovative ideas which they can share with each other in order to maximize the generation of revenues. Hence, partners can increase the profitability of their business venture by pooling in their innovative ideas.

However, all is not sunshine for partnerships as there are a number of serious drawbacks that an investor must consider when entering into a partnership with another person. A partnership is a legal agreement between two persons and this means that the persons are equally accountable for the profits that the business reaps as well as the losses that it bears. It should be noted however, that there are many cases where partnerships have been formed as a result of hasty decisions and insufficient planning (Hanrahan et al., 2011, p 29).

This has led to the partners not having a good understanding with each other. As a result, the business environment is affected. It is common for partners to have conflicting ideas. As is understandable, such instances seldom do any good to the business as they are the starting point of ...