Invest your Excess Money into a Partnership
January 12, 2009 § Leave a comment
If you are fortunate to have excess money and you can’t figure out where to use this, investing your money into a partnership can be a good decision. Unlike sole proprietorship where there is only one owner of a business, this type of business has two or more members/partners. Because of this, we can say that it is really easier to form a partnership. The business can easily acquire large amount of capital, depending on the amount of investment by each partner.
Invite your trusted friends to form a partnership. Or if they are not yet interested, you may look for an existing partnership. Ask them if you can still be admitted to their group. In order to know that you will be allowed to be admitted, all the existing partners’ opinion should be taken into consideration.
Once the existing partners have agreed to admit you in their partnership, you may become a legal partner of them by purchase or by investment. By the way, if a new person will be admitted, dissolution will take place. It is not actually termination of the partnership. It is just the termination of the existing agreements, due to change in capital structure.
Admission by Purchase and Investment
If the admission is by purchase, what you will do is buy the capital or interest of one or more partners in that business. It depends how much you want to purchase, and how much you can give. Take note that admission by purchase won’t increase nor decrease the total capital of the new formed partnership.
On the other hand, admission by investment will change the total capital of the partnership, because you will contribute additional cash to the partnership.
Kinds of Partners
There are mainly three kinds of partners if we will base it on what they contribute in the business.
Capitalist Partners – They are the ones who contribute cash and non-cash assets. Example of non-cash assets are equipment, land, and building.
Industrial Partners – These are partners who don’t contribute any cash or non-cash assets. So what can they do for the business? They contribute time, skills, talent. They work for the business.
Capitalist-Industrial Partners – If you can contribute cash/non-cash assets while also contributing skills to the business that would be awesome! You are now a capitalist-industrial partner.
How about the division of profit?
It is very unlikely to happen that there will be misunderstanding or trouble in division of profit in a partnership. This is because, before the formation of a partnership, an agreement is set on how to divide the profit or loss of the business. In the absence of agreement, the division will be based on the capital contribution of each partner.
I’m actually planning to invest some money into a partnership. I just wish I would have excess money soon.