Forms of Business OwnershipChapter # 2Part-IIIntroduction to BusinessShafayet UllahSECTION: A7

Partnership

A business owned by two or more people. An Association of two or more persons to carry on as co-owners of a business for profit.

A partnership can be based on a written contract or a voluntary and legal oral agreement. The law regards individual as partners when they act in such a way as to make people believe they operate a business together.

Forms of Business

Types of Partnerships General Partnership Limited Partnership Joint Venture

1. General PartnershipA Partnership in which at least one partner has unlimited liability; a general partner has authority to act and make binding decision as an owner. Partners generally share profits and losses according to a plan specified by agreement between them.The general partner may be liable for all the debts of the business.Types of Partnerships

2. Limited PartnershipA Partnership with at least one general partner and one or more limited partners who are liable for losses only up to the amount of their investment.The general partners arrange and run the business, while the limited partners are investors only. Investors receive special tax advantages and protection from liability.Limited partners legally may have no say in managing the business. If there is any violation, the limited partnership status is dissolved.Types of Partnerships

Master Limited Partnerships (MLPs)A new form of partnership, the master limited partnership (MLP), looks much like a corporation in that it acts like a corporation and is traded on the stock exchanges like a corporation, but it is taxed like a partnership and thus avoids the corporate income tax. Two well-known MLPs are Burger King and Perkins Family Restaurants.Types of Partnerships

Types of Partnerships2. Joint VentureSometimes a number of individuals and businesses join together in order to accomplish a specific purpose or objectives or to complete a single transaction. A joint venture (often abbreviated JV) is an entity formed between two or more parties to undertake economic activity together. The parties agree to create a new entity by both contributing equity (capital), and they then share in the revenues, expenses, and control of the enterprise. The venture can be for one specific project only, or a continuing business relationship such as the Fuji Xerox joint venture.

The Partnership Contract:

Sound business practice dictates that a partnership agreement be written and signed, although it is not a legal requirement. Such a contractual agreement is called Articles of Partnership.Written articles of partnership can prevent or lessen misunderstandings at a later date. Oral partnership agreements, though quite legal, tend to be hard to recreate and are open to misunderstandings. Written articles of partnership provide a proof of an agreement.

The Partnership Agreement includes:

Name of business partnership

Type of business

Location of the business

Expected life of the partnership

Names of the partners and amount of each one's investment

Procedure for distributing profits and covering losses

Amounts that partners will withdraw for services

Procedure for withdrawal of funds

Duties of each partner

Procedures for dissolving the partnership

Advantages of Partnerships More CapitalIn the sole proprietorship, the amount of capital is limited to personal wealth and the credit of the owner. But in a partnership business, when two or more people pool their money and credit, it is easier to pay the rent, utilities, and other bills incurred by a business.

Advantages of Partnerships Combined Managerial SkillsIn a partnership, people with different talents and skills may join together to form a business. It is simply much easier to manage the day-to-day activities of a business with carefully chosen partners. Partners give each other free time from the business and provide different skills and perspectives. Ease of StartingAs it involves a private contract contractual agreement, a partnership is fairly easy to start. It is nearly as free from government regulation as a sole proprietorship.

Advantages of Partnerships Clear Legal StatusThe legal outline for partnerships have been established through the court. The questions of rights, responsibilities, liabilities and partner duties have been covered. Therefore the legal status of a partnership is clearly visible. Lawyers can provide legal advice about the partnership issues.

Tax Advantages

The partnership has some potential tax advantage over a corporation. In partnership has some proprietorship, the owners pay taxes on their business earnings. But the partnership as a business does not pay income tax.

Disadvantages of PartnershipsWhen two people agree on anything, there is the possibility of conflict and tension. Partnerships have caused splits among families, friends, and marriages.

Unlimited LiabilityEach general partner is liable for the debts of the firm, no matter who was responsible for causing those debts. You are liable for your partners mistakes as well as your own. Like sole proprietors, general partners can lose their homes, cars, and everything else they own if the business loses a lawsuit or goes bankrupt.

Disadvantages of PartnershipsDisagreements Among PartnersDisagreements over money are just one example of potential conflict in a partnership. Who has final authority over employees? Who hires and fires employees? Who works what hours? What if one partner wants to buy expensive equipment for the firm and the other partner disagrees? Potential conflicts are many. Because of such problems, all terms of partnership should be spelled out in writing to protect all parties and to minimize misunderstandings.Decisions made by several people (Partners) are often better than those made by one, but when there are two or more people deciding on some aspect of the business can be dangerous. Power and authority are divided and the partners will not always agree on each other. As a result poor decision making and more time consuming can occur.

Disadvantages of PartnershipsInvestment withdrawal difficultyA person who invests money in a partnership may have a hard time withdrawing the investment. It is much easier to invest in a partnership than to withdraw. Sure, you can end a partnership just by quitting. However, questions about who gets what and what happens next are often very difficult to solve when the partnership ends.

Disadvantages of PartnershipsLimited Capital Availability

The partnership may have an advantage over the sole proprietorship in the availability of capital, but it does not compare to a corporation in ability to raise capital. Partners sometimes have limited capabilities and cannot compete in businesses requiring large amount of capital. The amount of capital a partnership can raise depends on the personal wealth of the partners and their credit ratings.

InstabilityIf a partner dies or withdraws from the business, the partnership is dissolved.

Forms of Business SyndicatesTwo or more businesses joined together to accomplishspecific business goals; a popular form in underwriting large amounts of corporation stocks.

It engages in financial transactions.

Unlike a Joint Venture, a syndicate need not to be dissolved after the transaction is completed.

Member of syndicate can sell their own interest to buyer, the remaining partners cant say anything.

END OF PART II

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