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Introduction to Business

Forms of Business
Ownership
Chapter # 2
Part-II
Shafayet Ullah
SECTION: A7

Forms of Business
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.

Types of Partnerships
1. General Partnership
2. Limited Partnership
3. Joint Venture

Types of Partnerships
1. General Partnership

A Partnership in which at least one partner has


unlimited

liability;

general

partner

has

authority to act and make binding decision as an


owner. Partners generally share profits and
losses

according

to

plan

specified

by

agreement between them.


The general partner may be liable for all the
debts of the business.

Types of Partnerships
2. Limited Partnership
A 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
2. Joint Venture
Sometimes 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 Capital
In 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 Skills
In 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 Starting
As 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 Status
The 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
Partnerships
When two people agree on anything, there is the
possibility of conflict and tension. Partnerships have
caused splits among families, friends, and marriages.
Unlimited Liability
Each 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
Partnerships

Disagreements Among Partners


Disagreements 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
Partnerships

Investment withdrawal difficulty


A 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
Partnerships

Limited 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.

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

Forms of Business
Syndicates
Two or more businesses joined together to accomplish
specific 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