Section 2 Partnerships
Preview
Objectives
After studying this section you will be able to:
- Compare and contrast the different types of partnerships.
- Analyze the advantages of partnerships.
- Analyze the disadvantages of partnerships.
Section Focus
Partnerships let individuals pool their resources and share responsibility for the forming and running of a business.
Key Terms
- partnership
- general partnership
- limited partnership
- limited liability partnership (LLP)
- articles of partnership
- Uniform Partnership Act (UPA)
- assets
A partnership is a business organization owned by two or more persons who agree on a specific division of responsibilities and profits. In the United States, partnerships account for about 7 percent of all businesses. They generate about 5 percent of all sales and about 10 percent of all income.
Types of Partnerships
Partnerships fall into three categories: general partnerships, limited partnerships, and limited liability partnerships. Each divides responsibility and liability differently.
Sometimes three heads are better than one.
General Partnership
The most common type of partnership is the general partnership. Partners in a general partnership share equally in both responsibility and liability. Many of the same kinds of businesses that operate as sole proprietorships could operate as general partnerships. Doctors, lawyers, accountants, and other professionals often form partnerships with colleagues. Small retail stores, farms, construction companies, and family businesses often form partnerships as well.
Limited Partnership
In a limited partnership, only one partner is required to be a general partner. That is, only one partner has unlimited personal liability for the firm's actions. The remaining partner or partners contribute only money. They do not actively manage the business. Limited partners can lose only the amount of their initial investment. A limited partnership must have at least one general partner, but may have any number of limited partners. The main advantage of being a general partner is in having control of the business. The main drawback, of course, is the extent of liability.
Limited Liability Partnerships
The limited liability partnership (LLP) is a newer type of partnership recognized by many states.
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