Partnership Business Formation: A Case Study of Nike Inc.

Introduction

Partnership is one of the most commonly adopted forms of business. A partnership business formation is an agreement between two or more individuals to operate and finance a business (Adrian, 2010). Unlike a sole proprietor, a partnership is an entity that is legally separate from the partners themselves. However, in a general partnership, losses and profits are realized through the tax returns of the partners (Adrian, 2010). In partnerships, each partner has equal authority and responsibility in running a business. In fact, each partner is involved in daily operations and decision making in the business. Any partner is capable of representing the business without the prior knowledge of other partners: the action of a single partner is binding in the entire partnership (Adrian, 2010). The shared concept of ownership characterizing partnership businesses presents distinctive advantages and disadvantages, which are discussed in the paper. The paper also explores on Nike Inc., an example of partnership business formation, as a case study to fully understand the concept of the partnership form of business.

Advantages of Partnership Business Formation

A partnership is easily formed. The formation of partnerships is easy in the sense that they require simple agreement amongst the partners whether oral or written in bringing the partnership into existence. In addition, partnerships require very less legal expenses and formalities (Adrian, 2010). In the case of Nike Inc., it was formed by two college friends: Phil Knight and Bill Bowerman (Nike, 2005). This made the cost of formation and formation procedure of Nike Inc. to be much easier

Partnerships present a large pool of resources. A partnership is capable of accumulating large resources since more than one partner contributes the capital making the business be easily started. This, therefore, implies that the more the business partners, the more, the more capital plunged into the business allowing more potential growth and better flexibility (Adrian, 2010). In addition, new partners are allowable and, thus, meeting the additional fund requirement to increase the scale of operation. Ultimately, there are more potential profits which are equally shared among the partners. The founders of Nike Inc. started the business with a collective amount of $1000 (Nike, 2005). Each partner contributed equally ($500) unlike in a sole proprietorship in funding their business endeavor. In less than a decade, the business had accumulated a revenue of about $2 million, from $8000 (Nike, 2005). In partnerships, there is sharing of capital in business formation that leads to maximum yield of revenue in return.

Moreover, there is flexibility of operations in partnerships. Partnerships are generally easier to run, manage, and form. They have less strict regulations than companies in relation to laws governing their formation and operation, since only the partners dictate how a business runs, and not stakeholders (Adrian, 2010). Moreover, they are more flexible in their management depending on the agreement of the partners. For instance, while still operating under Blue Ribbon Sports, Knight and Bowerman did operate their business out of cars at local sporting events and meets to athletes while at the University of Oregon (Locke, 2003). The business was flexible leading to the continuity of the business.

There is also sharing of responsibilities in a partnership. Partners are directly involved in the operations of the business, a fact that makes them fully utilize their unique abilities. In addition, they split the work according to their specialization as opposed to splitting the management and assuming equal share of business tasks (Adrian, 2010). For instance, if a partner is gifted with figures, he/she would be dealing with accounts and book keeping, while the other partner also majors in his/her field of specialization. Nike Inc. started as a partnership between the Olympian coach of the University of Oregon, Bill Bowerman, and one of his athletes, Phil Knight. Moreover, Bowerman as a coach though of how he could improve the performance of his runners with good equipment whereas Knight who graduated as Certified Public Accountant, wanted to put into test his plan of importing high-tech and low low-priced athletic shoes from Japan (Locke et al., 2007). These two areas of specialization led to the establishment of Blue Ribbon Sports, which was later renamed Nike. Besides, there is sharing of risks as the losses and other business associated risks are shared by the business partners. There is also shared decision-making in partnerships. Business partners share the process of decision-making which is helpful in avoiding power wrangles in businesses (Adrian, 2010). In addition, more partners lead to culturing of more brains that are useful in generating business ideas and at the same time solving encountered business problems. The two brains of the founders brainstormed on a feasible business idea which came to reality, and currently Nike Inc. is a multi-billionaire business.

Disadvantages of Partnership Business Formation

One of the notorious disadvantages of business partnerships is the disagreement between the partners. People possess varied, skills and ideas that they could offer for the running of the business, thus, disagreements based on opinions may arise (Adrian, 2010). This issue necessitates the drafting and signing of a partnership deed during the period of business formation in ensuring that each partner is conversant with procedures to be taken in transferability of ownership and liquidity of the owner’s investment in case of disagreements. Nike Inc. was not exceptional, and the two founders signed a written agreement and a handshake between Phil Knight and Bill Bowerman sealed the agreement founding the business and signaling the start of the revolution (Locke, 2003).

Another disadvantage of partnerships is the taxation liability. Taxation laws are worse in partnerships as each partner must pay tax similar to a sole trader and submits a self-assessment tax return yearly (Adrian, 2010). Consequently, partnerships are subjected to higher personal taxation levels than in a limited company. Initially, Blue Ribbon Sports (BRS) used to be a distributor of Onitsuka Tiger, a footwear company from Japan, but due to high taxation level realized by the business (Locke et al., 2007), BRS broke out and created their own market and as already said, BRS was later renamed Nike.

Conclusion

A partnership business formation involves two or more individuals who agree to finance and operate a business. Nike Inc. is a multinational corporation, which began a partnership. Advantages of a business partnership motivated Knight and Bowerman to start Nike Inc. These advantages include easier formation; encourage pooling of resources and, thus, little capital contribution by a partner; and sharing of responsibilities. However, it also has some disadvantages involving disagreements and unfair taxation. Nike Inc. only suffered from unfair taxation laws as no disagreement has been recorded, and thus the transferability of ownership and liquidity of owner’s investment have not been witnessed.  

References

Adrian, M. (2010). Advantages and Disadvantages of Partnership. (online) Available at: < http://blog.thecompanywarehouse.co.uk/2010/03/01/advantages-and-disadvantages-of-partnership/ > (Accessed on 9th April, 2014).

Locke, R., Kochan, T., Romis, M., and Qin, F.  2007. Beyond Corporate Codes of Conduct: Work Organization and Labour Standards at Nike’s Suppliers. International Labour Review 146 (1-2), 21.

Locke, R., M. 2003. The Promise and Perils of Globalization: The Case of Nike. In A., Thomas and R., Schmalensee (Eds), Management:  Inventing and Delivering Its Future. Cambridge, MA: MIT Press, 39–70.

Nike. 2005. FY04 Corporate Responsibility Report. (online) Available at: <www.nike.com/nikebiz/gc/r/fy04/docs/FY04_Nike_CR_report_full.pdf> (Accessed on 9th April, 2014).

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