(ACC 003 - Fundamentals of Accounting Part 2) Lesson Title: Enumerating Kinds of Partnerships and Partners Lesson Objectives: References

(ACC 003 – Fundamentals of Accounting Part 2)
Lesson title: Enumerating kinds of Partnerships and Partners References

Lesson Objectives: https://www.thebalancesmb.com/se
At the end of this module, I should be able to: lecting-a-business-partnership-
Enumerate the different kinds of Partnership and Partners. 398880
A. LESSON PREVIEW/REVIEW
1) Introduction
A common option for people who want to go into business with other people is
partnership. The term of the word partnership has changed over the years, as people who have
business come to add new features to the old business form. A partnership is a business with
two or more person whom owns part of the business. If you don’t want to run your business
alone, then you might want to consider forming a partnership. However, you must know what
kind of partnership that will fit for your business structure and what kind of partner do you need.
Unlike other business structures, there are multiple types of partnership you can choose. The
relationship between the partners, type of ownership, and duties of each partner are clarified by
a partnership agreement. The partners that you can have may be active participants in running
he business or they can be a passive investor. Any partnership, each partner “buy-in” or invest
in the partnership. Typically, each partner’s share the partnership profits and losses but based
on his or her percentage share of the ownership.
B. MAIN LESSON
To start talking about partnership business we must talk about the two types of partners:
general partners and limited partners. They both invest in the business but they differ in their
activity within the business.
General partners are active in the business, doing the work of the company but also
participate in management and decision-making.
Limited partners are passive. They have invested in the business but they don’t
participate on a day-to-day basis in the running of the business unlike the general partners.
In addition, there is actually a third kind of partner, that is the managing partner, a
general partner who takes on added duties in the management of the partnership business
affairs.
Now, let’s talk about the type of partnership in business. Since you have a little more
background information on partnership, let’s dive into the four types of partnership in business.
You should know that there are many pros and cons of partnerships. You need to weigh the
advantages and disadvantage before you decide which type of partnership is the best route for
your business. We have general partnership, limited partnership, limited liability partnership and
LLC partnership.
General partnership is where the business owned by two or more individuals who agree
to run the business as partners or co-owners. This partnership is with a general partner only.
The partners must agree to major decisions, acting as a corporate board of directors and may
sign a contract on behalf of the partnership. The advantage of this general partnership is that
partners can act independently and can invest in different types of capital. It also has a low
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(ACC 003 – Fundamentals of Accounting Part 2)
startup costs and few formalities. While its disadvantage is that it operates as a sole
proprietorship with no separation between the partners and the business. The reason why their
liability is not limited because general partners actively participate. For example, is that if one
partner is sued, all its partners are held liable too. Even personal assets may be taken by a
court or creditor. If you plan on forming a general partnership, create a formal agreement stating
each partner’s role and shares. Specify how you plan on selling or closing the business if the
partnership dissolves.
Limited partnerships are more structured than general partnership. It has both general
and at least one limited partner. The limited partners only serve as investors for the partnership.
The limited partner does not have decision-making rights. They get ownership but they don’t
have as many risks and responsibilities as a general partner. The limited partners can lose their
status if they become too involved in managing the company like signing legal documents or
contracts. You should be careful about the activities you do and the decisions you make in the
partnership. The advantage of this partnership is that you only provide capital and you receive a
share of the profits. If you want to use limited partnership to form a partnership with relatives or
friends who just want to invest. However, its disadvantage is that you don’t participate in
management and considered as passive investors. This means that you only take losses up to
the amount of their income for the year.
Limited liability partnership or known as LLP is different from a limited partnership or a
general partnership but closer to a limited liability company or LCC. In this partnership all
partners have limited liability. This partnership often formed by groups of professionals who
want to pool their resources and save money by sharing space. Typically, with LLP you can’t
lose your personal assets if someone takes legal action against your business. However,
partners can be held liable if they personally do something wrong. Its advantage is that unlike
limited partnership, general partners in an LLP have limited liability. While its disadvantage is
that he liability for all partners is limited, some businesses or individuals may be wary of doing
business with the partnership. In this partnership, it makes easy to add or remove partners. You
can also have liability protection from other members’ actions.
LLC or known as the limited liability company has become more common than the
general partnership and limited partnership due to its more limited liability for the owners. In this
partnership can have two or more owners which is called members. They are referred to as
multi-member LLCs or LLC partnership. Under this partnership is that members’ personal
assets are protected. Some cases, members can’t be sued for the business’s actions or debts.
However, members can still be held liable for other members’ actions. LLC partnerships offer
personal liability protection and tax flexibility for member.
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