Everything about General partnership in UAE
A general partnership, also known as a GP, is a type of business structure in which two or more individuals share ownership and management of a company. In the United Arab Emirates (UAE), general partnerships are a common form of business structure, particularly for small and medium-sized enterprises (SMEs).
How it works:
In a general partnership, each partner is responsible for the management of the business and is also personally liable for the business’s debts and obligations. It means that each partner’s assets, such as their home or bank account, can be used to pay off business debts if the business fails to do so.
Each partner is entitled to share in the profits and losses of the business in proportion to their agreed-upon ownership stake. The partners also have the authority to make decisions and initiate actions on behalf of the business.
Pros:
Easy to Set Up: General partnerships are relatively easy to set up and do not require a significant upfront amount or legal procedures, making them a popular choice for small businesses.
Flexibility: General partnerships offer flexibility in terms of ownership structure, as partners can agree to split profits and losses in any manner they choose.
Personal Involvement: In a general partnership, each partner is personally involved in the management and decision-making of the business, which can provide a greater sense of control and satisfaction.
Shared Responsibility: With multiple partners, the burden of managing and financing the business is shared, which can help to reduce the risk of financial loss for any single partner.
Cons:
Personal Liability: One of the biggest drawbacks of a general partnership is that each partner is personally liable for the business’s debts and obligations. This means that personal assets can be seized to pay off business debts in the event of financial difficulties.
Disagreements: With multiple partners involved in the management of the business, disagreements can arise, which can be disruptive to the operations of the business and lead to strained relationships between partners.
Difficulty Raising Capital: General partnerships may find it more challenging to raise capital compared to other business structures, as investors may be wary of the unlimited personal liability associated with the structure.
Conclusion
In conclusion, a general partnership can be a good choice for small businesses that want to share the ownership and management responsibilities of the business. However, it is important to understand the potential risks associated with this structure, including personal liability and the possibility of disagreements between partners. Before forming a general partnership, it is advisable to seek the advice of a business setup expert like FlyingColour to ensure that the partnership agreement is properly structured and protects the interests of all partners.
