How New People Can Be Introduced into the Structure of Partnership, Trust and Company - Essay Example

How New People can be introduced into the Structure of Partnership, Trust and Company A business partnership is a relationship between two or more people that exists simply because these people are doing business together and they have the common goal of making profit from the business (Chasalow, 2010). Different types of partnerships have different number of partners recommended, and there are also different types of partners. This means that, depending on the type of partnership, new people can be introduced into the structure of the partnership along the way. However, there are two sides to every coin, and this is no exception. Such partnerships can either result to be unions that are unshakeable and that are full of variety of associations, skills, abilities, customers and resources. Or, they can result to be bitter whereby business failure ca occur, partners can become dishonest with each other and even separate (Klein, 2005). The structure of the partnership, trust and company is what matters the most when it comes to introducing new people. First, the structure should be that which clearly defines the rank and duties of each partner. If this is left open, then the assumption is that all the partners are equal when it comes to sharing profits, losses, duties and trading. The agreement should clearly state how profits, losses and duties are divided; the right or level of accessibility of each partner to the business’s finances, salaries, and etc. otherwise, introducing new people into the business partnership, trust and company may be a very tricky attempt (Palmiter, 2006). New people can be introduced into a partnership, trust or company structure especially because of the fact that it becomes easy to raise needed capital and the load of duties decreases when a new person steps into the structure. Also, in the case of losses, sharing of these losses becomes much easier as compared to when these losses are shared between fewer people. However, if this new person does actions that bring liability to the business, then all the other partners bear the liabilities. Admission of a new partner in the business may also lower the potential of the business in some ways, meaning that caution should be exercised when introducing new people. Also, the more the people in the business, the more likely it is to have disputes in the business, which may lead to its dissolution (Aspen Publishers, 2007). Every partnership, trust and company has its own ethics that run and govern it. Therefore, a new person may or may not fit into these rules and ethics, which may either cause smooth running of the business or hardships and disagreements. Also, depending on the structure of compensation of the company, the new partner should be considered in the compensation program accordingly. The level of compensation should be balanced in such a way that it is fair to both the new person and the existing partners. Introducing a new person into the structure may be easy because the new person will start paying for their stake in the business (which translates to more capital and liquid assets into the business), but it is also hard because this means that the ownership portion of the new person should be given to him (Emanuel, 2009). Introducing a new person into the partnership, trust or company can also be hard when the business has loans, debts and liabilities. This is because sharing them with the new person can be somewhat tricky. However, this can be made easier by excluding the partner from all debts that occurred in their absence and allowing them to start on a clean slate. Also, an exit strategy has to be designed. No partner should be permanently held onto the business, and each should be free to leave the business at some point or at their own will. The business should therefore be ready to pay the partner his equity when the partner chooses to leave. The exit strategy should be made clear to the new person introduced so as to ensure clarity in perspective and to minimize the potential disputes that can arise when the partner wants to leave (Kleinberger, 2008). When introducing a new person to the business, there needs to be thorough discussion with the new person about the vision and goals of the business. This will cause the new person to be at par with the other partners of the business (Schneeman, 2009). Also, regular meetings have to be held with the new partner and other partners. This will ease communication between the involved parties, thus causing better understanding and cooperation. However, this may be very taxing especially because of the fact that there is need to change the partnership agreement when a new person is introduced into the business. This agreement should be change such that it accommodates the new person comprehensively (Bauman, Palmiter & Weiss, 2004). The terms of the responsibilities, liabilities, assets, equity, exit strategy, rights, ranks, compensation, access to the bank account and financial records, et cetera will have to be changed. These will also have to be presented to the necessary parties. For instance, a change in the terms of accessing the finances and bank account of the business will have to be presented to the respective banks of the business so that the banks will also be aware and verify the information (Aspen Publishers, 2007). Introducing anew person to the partnership, trust or company is very beneficial to the business in many ways, but this means that an extra effort and inconvenience of changing the sharing of assets has to be changed. Every business has a strategy by which assets can be shared among partners in case of dissolution of the business. Therefore, having a new person means that a revision has o be done on the sharing of the assets of the company or business accordingly. New policies governing how disputes are handled will have to be drafted, and the decision making process will be longer because of the extra person required to agree with what is being done. For such agreements and policies to be changed and drafted, the business may most likely need to have an attorney to assist in the legal issues concerned (Pinto & Branson, 2004). However, all these challenges and inconveniences cannot rule out the advantages there are in getting a new person into the business. Partners in business come in handy in providing support and growth to the business. This is especially so if the person who is being introduced is a business owner or has ever owned a business; this way, the person easily fits into the business because he knows the challenges and demands of business. Also, it becomes very easy if the person has a similar goal to that which currently exists in the business, because he also works towards the same goal as the business and its partners (Lundmark & Carroll, 2001). Every person has their own circle of connections, and these connections are not cut off when a new person is introduced into the structure of the partnership, trust or company. The new person comes in with their connections, which aid in boosting the business. The business, therefore, becomes exposed to an additional group in the market, making it grow at a higher rate. However, this is not possible if the new person being introduced is not on the same page as those already in the business (Palmiter, 2006). However, it is easier to introduce new people into a partnership and a company than it is to introduce new people to a trust. This is because of the somewhat complex nature of trusts (Schneeman, 2009). In a trust, a new person cannot be introduced unless by the trustee, the beneficiary or by another person who has the power to introduce or appoint a new beneficiary. The power to appoint a new trustee is applicable only on specific circumstances, for instance when the current trustee is out of the country for twelve months or more without stating their whereabouts or without stating clearly what should be done with the trust in their absence (Allen, 2005). This is unlike in a partnership or a company where introduction of a new person can be done at the will of the partners when they feel the need for another person. Also, a new person can be brought in when the existing trustee or beneficiary chooses to leave or be removed from the trust or declines the office of being a trustee in the trust. Also, if the existing trustee is found unfit to be one (due to age, ability et cetera) then a new trustee is appointed either totally and indefinitely or for a certain period of time and for a certain amount of equity (Lundmark & Carroll, 2001). In a trust, more care is taken when introducing a new person into it because of the powers and rights the trustee has in the trust. This is unlike in a company or partnership, where the new and existing persons do not have as much sole power as in a trust. In a trust, the trustee can sell the trust, mortgage it, rent it out and insure it, invest in it or using it, use it as security, carry it on as a business, put it in the care of agents or to maintain it (Smith, 2010). However, there are similarities between a trust and a partnership, in that both are limited liability structures. Just as the partners have ownership and equity, the trustee has ownership, though a trustee’s level of ownership is more advanced. This explains why it is more complex to introduce a new person in a trust than in a partnership. In a partnership, it is easier to introduce a new person, because this person gets into the same level of the other partners, who have the right to bind or permit activities in the partnership (Klein, 2005). However, in a trust, it is different because the beneficiary or beneficiaries of the trust cannot act as agents to the trust. Also, each partner in a partnership is treated as a separate legal entity that can sue, be sued, compensate and be compensated. However, a trust and the trustee or beneficiaries are not recognized as separate legal entities. This makes it even harder to introduce a new person into a trust, because any legal; accusations should be made to the individual in the name of the trust and not vice versa (Emanuel, 2009). References Allen, R.J. (2005). Business Organization 05-06 Case. London: Aspen Publishers. Aspen Publishers. (2007). Business Organizations: Keyed to Course Using Bauman, Palmiter, and Partnoy’s Corporations Law and Policy Sixth Edition. London: Aspen Publishers Online. Bauman, J.D., Palmiter, A.R. & Weiss, E.J. (2004). Corporations Law and Policy, Materials and Problem. New York: Thomson/West Press. Chasalow, M. (2010). Business Associations. New York: West. Emanuel, S. & Emanuel, L. (2009). Corporations. London: Aspen Publishers. Klein, W. A. (2005). Business Associations: cases and materials on agency, partnerships and limited liability entities. New York: Foundation Press. Kleinberger, D.S. (2008). Agency, Partnerships, and LLCs: examples and explanations. London: Aspen Publishers Online. Lundmark, T. & Carroll, W.J. (2001). Business Associations in the Common Law World. London: LIT Verlag Munster. Palmiter, A.R. (2006). Corporations: examples and explanations. London: Aspen Publishers. Pinto, A.R. & Branson, D.M. (2004). Understanding Corporate Law. London: LexisNexis. Schneeman, A. (2009). Law of Corporations and other Business Organizations. London: Cengage Publishers. Smith, H.A. (2010). The Laws of Associations, Corporate and Un-incorporate. London: General Books LLC. Read More