Partnerships Partnership A form of business organization defined by the Uniform Partnership Act as “an association of two or more persons who carry on as co-owners of a business for profit” One way to minimize the disadvantages of sole proprietorship and maximize its advantages is to have more than one owner Typically larger than sole proprietorships but smaller than corporations Partnerships can be a fruitful form of business as long as you follow some keys to success One way to minimize the disadvantages of sole proprietorship and maximize the advantages is to have more than one owner. Which brings us to the second form of business ownership that we will discuss, the partnership. A partnership is a form of business organization defined by the Uniform Partnership Act as an association of two or more persons who carry on as co-owners of a business for profit. Typically, partnerships are larger than sole proprietorships but smaller than corporations. Partnerships can be a fruitful form of business as long as you follow some keys to success, outlined on the following slide.

Articles of Partnership Partnerships General Partnership Involves a complete sharing in both the management and the liability of the business Limited Partnership Has at least one general partner, who assumes unlimited liability, and at least one limited partner whose liability is limited to his or her investment in the business There are two types of partnerships: general partnerships and limited partnerships. A general partnership involves a complete sharing in both the management and the liability of a business. In this type of partnership, each partner has unlimited liability for the debts of the business. Professionals such as lawyers, accountants, and architects often join together in general partnerships. A limited partnership has at least one general partner who assumes unlimited liability, and at least one limited partner, whose liability is limited to his or her investment in the business. Limited partnerships exist for risky investment projects where the chance of loss is great. Examples include oil-drilling partnerships and real estate partnerships. Limited partners do not share in the management of the business but share in the profits. Most states require either general or limited partnerships to have articles of partnership which are legal documents setting forth the basic agreement between the partners. Articles of Partnership Legal documents that set forth the basic agreement between partners

Partnerships Disadvantages Advantages Easy to organize Availability of capital & credit Combined knowledge and skills Swift decision making Government regulations are few Advantages Unlimited liability Responsible for each others’ decisions A new agreement is needed if the partnership changes Difficult to sell a partnership interest Distribution of profits may be uneven Cannot find external funding as easily as large corporations Disadvantages When deciding if a partnership is the right ownership choice, advantages and disadvantages must be compared with those offered by other forms of business organization, and not all apply to every partnership. The advantages are: Partnerships are easy to organize. Starting a partnership requires little more than drawing up articles of partnership. They have higher credit ratings due to the partner’s combined wealth. Partners can specialize in their particular areas of expertise such as accounting or marketing. Partnerships can make decisions faster than larger businesses. Government regulations are few. The disadvantages include (1) General partners have unlimited liability for the debts of the partnership, just as in a sole proprietorship. (2) Partners are responsible for each others’ decisions and a bad decision by one partner can put the other partners’ personal resources at risk. (3) The death or termination of one partner requires a new partnership agreement be drawn up. (4) It is difficult to sell a partnership interest at a fair price. (5) The distribution of profits may not correctly reflect the amount of work done by each partner. (6) Partnerships cannot find external sources of funds as easily as can large corporations.

Partnerships are quasi-taxable organizations Partnerships do not pay taxes but do file a tax return providing information on profitability and distribution of profits Partners report their share of the profits and pay taxes at the income tax rate for individuals One last thing about the taxation of partnerships. Partnerships are quasi-taxable organizations, meaning the partnership does not pay taxes. While they do file a tax return, this is simply to report on the profitability of the organization and the distribution of profits among the partners. The partners must report their share of the profits on their own tax returns and pay taxes at the rate for individuals.

Partnerships In 1996 Stanford students Sergey Brin and Larry Page partnered to form the search engine Google as part of a research project The company was incorporated in 1998 and is now the world’s top search engine In 1996, Stanford students Sergey Brin and Larry Page partnered to form the search engine Google as part of a research project. The company incorporated in 1998 and is now the world’s top search engine.