Chapter 8 Types of Business Organizations Section 2

Chapter 8: Types of Business Organizations Section 2: Forms of Partnerships pg. 232 -237

A Partnership • A partnership is a business coowned by two or more people, or “partners, ” who agree on how responsibilities, profits, and losses will be divided. • Partnerships are found in all kinds of businesses, from construction companies to real estate groups. • However, they are especially widespread in the areas of professional & financial services —law firms, accounting firms, doctors’ offices, and investment companies. • There are several different types…

Type 1: General Partnerships • The most common type of partnership is the general partnership. • This is a partnership in which partners share responsibility for managing the business and each one is liable for all business debts and losses. • As in a proprietorship, their liability could put personal savings at risk. • Partners share responsibility, liability, and profits equally, unless there is an agreement that specifies otherwise. • This type of partnership is found in almost all areas of business.

Type 2: Limited Partnerships • In a general partnership each partner is personally liable for the debts of the business. • There is a way to limit one’s liability, through a limited partnership. • This type of partnership is when at least one partner is not involved in the day-to-day running of business and is liable only for the funds he or she has invested. • All limited partnerships must have at least one general partner who runs the business and is liable for all debts, but there can be any number of limited partners. • Limited partners share in the profits. • This form of partnerships allows the general partner to raise funds to run the business.

Type 3: Limited Liability Partnerships (LLP) • This is a partnership in which all partners are limited partners and not responsible for the debts and other liabilities of other partners. • T/f, if one partner makes a mistake that ends up costing the business a lot of money, the other partners can’t be held liable • Not all businesses can register as LLPs. • Those that can include medical partnerships, law firms, and accounting firms. • These are businesses in which malpractice--negligent, or unprincipled behavior—can be an issue. • This is a new form of business organization, and the laws governing them vary from state to state.

Partnerships: Advantages-1 • Easy to Open and Close: Partnerships, like sole proprietorships, are easy to start up and dissolve. As long as your bills are paid you may dissolve a partnership at any time. • Few Regulations: you can enter a partnership w/o a lot of regulations. Partners are covered under the Uniform Partnership Act (UPA), a law, adopted by most states that lays out basic partnership rules.

Partnerships: Advantages-2 • Access to Resources: Partnerships generally make it easier to get bank loans for businesses purposes. A greater pool of funds makes it easier for partnerships to attract and keep workers. • Joint Decision Making: With more than one person making decisions this could result in better decisions. Limited partners don’t make decisions. • Specialization: Each partner should bring specific skills to the business. Having partners focus on their special skills promotes efficiency.

Partnerships: Disadvantages-1 • Unlimited Liability: This is the biggest disadvantage, just like sole proprietorships, you can lose all of your savings and your property to cover your business debts. • Potential for Conflict: Having more than one decision maker can often lead to conflict, b/c all partners may need to approve.

Partnerships: Disadvantages-2 • Limited Life: Like sole proprietorships, partnerships have limited life. When a partner dies, retires, or leaves for some reason, or if new partners are added, the business as it was originally formed ceases to exist legally. A new partnership arrangement must be established if the enterprise is to continue.