Business Organizations Partnerships Chapter 8 – Section 2
Business Organizations Partnership – a business organization owned by two or more persons who agree on a specific division of responsibilities and profits. In the US – Partnerships account for about 7% of all businesses. They generate about 5% of all sales.
Business Organizations 3 Types of Partnerships: A. General Partnership Partnership in which partners share equally in both responsibility and liability. Both partners manage the business. i.e. Doctors, lawyers, accountants, and etc. form partnerships
Business Organizations 3 Types of Partnerships: B. Limited Partnership Partnership in which only one partner is required to be a general partner. Usually limited in financial responsibility. Only one person has unlimited personal liability for the firm’s actions.
Business Organizations 3 Types of Partnerships: C. Limited Liability Partnerships * is a newer type of partnership recognized by many states. * In this type – all partners are limited partners. * An LLP functions like a general partnership, except that all partners are limited from personal liability in certain situations, such as another’s person mistakes. Not all types of businesses are allowed to register as a LLP.
Business Organizations Advantages of a Partnership 1. Easy to start Close to a Sole Proprietorship Must file “articles of partnership” which specifies how the business will be run. Lays out the ground rules. Spells out each partner’s rights and responsibilities. If the partners do not file an article of partnership, then they fall under the Uniform Partnership Act – an act ordering common ownership interests, profit and loss sharing, and shared management responsibilities in a partnership.
Business Organizations Advantages of a Partnership 2. Greater Management Experience Due to more owners have more experience. One could run the sales/marketing/accounting and the other one could run the day to day part of the business.
Business Organizations Advantages of a Partnership 3. Profits are only taxed as individual income. No Business Taxes apply. Partners split the profit.
Business Organizations Advantages of a Partnership 4. Easier to get Financial Capital - With two partners, banks are more willing to give out loans to start up a business. - Both partners may have more start up money saved to make it easier to get a loan.
Business Organizations Advantages of a Partnership 5. Larger Size and Stock 6. Easier to Attract Top Talent Partnerships are able to give more benefits to their employees than a Sole Proprietorship can or does.
Business Organizations Weaknesses of a Partnership A. “Joint & Several Liability” - Partners are liable as a group (jointly) for business debts. - Each partner is also individually (severally) liable for all the debts of the partnership (several means “cut apart” or severed from the others) -Exception is for “limited partners” – - only liable for the amount they have invested – personal assets are not at risk.
Business Organizations Weaknesses of a Partnership 2. Limited Life - The partnership ends when one of the partners dies. - The remaining partner may form a new partnership with someone else, but that is a new partnership – have to follow the rules to set up a partnership.
Business Organizations Weaknesses of a Partnership 3. Conflicts between the Partners - the partners may disagree on things about running a business and this could lead to a break up of the partnership.