A partnership can be described as an arrangement among parties to function and manage a business and share the returns. Typically, in most partnership businesses, partners share both profits and liabilities equally. However, there are some partnerships where some partners have limited liability. There are also cases of silent partners, where some parties are not actively involved in the everyday running ( Jeter & Chaney, 2019 ). In most cases, partnerships use the same methods of accounting used by proprietorships and corporations. However, instead of using the generally accepted accounting principles, some partnerships prefer using the tax basis or cash basis accounting. The cash basis accounting method, one of the significant accounting techniques, recognizes expenses and revenues when cash is paid out or received.
There are several benefits of operating as a partnership. One of the significant benefits of a partnership is the opportunity to expose an organization's products to a new audience. That is what Sherwin-Williams and Pottery Barn, a paint company and a home furnishing store, respectively, did when they partnered in 2013 ( Newmeyer et al., 2018 ). By functioning together, the two companies have managed to create an exceptional product line of paints alongside a well-structured Pottery Barn's website, which allows clients to efficiently select paint colors that march with their furniture. Other advantages of operating as partnerships are as follows: Businesses performed as partnerships can be started with lower capital than in independent businesses. They are also more comfortable and faster to start and set up in terms of registering a business ( Jeter & Chaney, 2019 ). Another advantage of partnerships is that they do not have the typical corporate formalities such as the annual meetings and by-laws, which usually are experienced in independent businesses. Also, partnerships lead to favorable taxation for some businesses, which therefore did not have to pay specific taxes imposed on corporates.
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Given that every operation technique must have some limitations, however minor they may be, the partnership between Sherwin-Williams and Pottery Barn can encounter a difference in the management style, resulting in conflicts and misunderstandings ( Newmeyer et al., 2018 ). To solve the problem, the organizations should create more effective communication modes and come up with a neutral managerial team to avoid biased decisions that can ruin the relationship.
References
Jeter, D. C., & Chaney, P. K. (2019). Advanced accounting . John Wiley & Sons.
Newmeyer, C. E., Venkatesh, R., Ruth, J. A., & Chatterjee, R. (2018). A typology of brand alliances and consumer awareness of brand alliance integration. Marketing Letters , 29 (3), 275-289.
