1. @ 2012, Cengage Learning 1 Accounting for Partnerships and Limited Liability Companies LO 1 – Understanding the Basics of Proprietorships, Partnerships, and Limited Liability Companies

2. @ 2012, Cengage Learning 2 Four Most Common Legal Forms of Business  Proprietorship  Corporation  Partnership  Limited Liability Company LO 1

3. @ 2012, Cengage Learning 3 Proprietorship  A proprietorship is a company owned by a single individual.  Lawyers  Architects  Realtors  Physicians LO 1

4. @ 2012, Cengage Learning 4 Proprietorships  Characteristics of proprietorships include the following:  Simple to form  No limitation on legal liability  Not taxable  Limited life  Limited ability to raise capital (funds) LO 1

5. @ 2012, Cengage Learning 5 Partnerships  A partnership is an association of two or more persons who own and manage a business for profit. Characteristics of a partnership include the following:  Moderately complex to form LO 1 A partnership requires a partnership agreement, sometimes called the articles of partnership, which includes matters such as amounts to be invested, limits on withdrawals, distributions of income and losses, and admission and withdrawal of partners.

6. @ 2012, Cengage Learning 6 Partnerships  A partnership is an association of two or more persons who own and manage a business for profit. Characteristics of a partnership include the following:  No limitation on legal liability  Not taxable  Limited life  Limited ability to raise capital (funds) LO 1

7. @ 2012, Cengage Learning 7 Partnerships  In addition to the characteristics listed on the previous slide, some unique aspects of partnerships are:  Co-ownership of partnership property  Mutual agency  Participation in income LO 1

8. @ 2012, Cengage Learning 8 Partnerships  A limited partnership is a unique legal form that provides partners who are not involved in the operations of the partnership with limited liability.  There must be at least one general partner who operates the partnership.  The remaining partners are considered limited partners. LO 1

9. @ 2012, Cengage Learning 9 Limited Liability Companies  A limited liability company (LLC) is a form of legal entity that provides limited liability to its owners but is treated as a partnership for tax purposes. Characteristics include:  Moderately complex to form  Limited legal liability  Not taxable  Unlimited life  Moderate ability to raise capital (funds) LO 1