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Business Partnership Structure




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Partnership Structure
There are three general types of partnership arrangements:
General Partnerships assume that profits, liability and management duties are divided
equally among partners. If you opt for an unequal distribution, the percentages assigned to each
partner must be documented in the partnership agreement for its validity.
Limited Partnerships (also known as a partnership with limited liability) are more
complex than general partnerships. Limited partnerships allow partners to have limited liability
as well as limited input with management decisions. These limits depend on the extent of each
partners investment percentage. Limited partnerships are attractive to investors of short-term
Joint Ventures act as general partnership, but for only a limited period of time or for a
single project. Partners in a joint venture can be recognized as an ongoing partnership if they
continue the venture, but they must file as such.
Advantages of a Partnership
Easy and Inexpensive, Partnerships are generally an inexpensive and easily formed
business structure. The majority of time spent starting a partnership often focuses on developing
the partnership agreement.
Shared Financial Commitment, In a partnership, each partner is equally invested in the
success of the business. Partnerships have the advantage of pooling resources to obtain capital.
This could be beneficial in terms of securing credit, or by simply doubling your seed money.
Complementary Skills, A good partnership should reap the benefits of being able to
utilize the strengths, resources and expertise of each partner.
Partnership Incentives for Employees, Partnerships have an employment advantage
over other entities if they offer employees the opportunity to become a partner. Partnership
incentives often attract highly motivated and qualified employees.
Disadvantages of a Partnership
Joint and Individual Liability: Similar to sole proprietorships, partnerships retain full,
shared liability among the owners: Partners are not only liable for their own actions, but also for
the business debts and decisions made by other partners. In addition, the personal assets of all
partners can be used to satisfy the partnership’s debt.

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Disagreements among Partners: With multiple partners, there are bound to be
disagreements Partners should consult each other on all decisions, make compromises, and
resolve disputes as amicably as possible.
Shared Profits: Because partnerships are jointly owned, each partner must share the
successes and profits of their business with the other partners. An unequal contribution of time,
effort, or resources can cause discord among partners.
Corporations are more complex than other business structures because they tend to have costly
administrative fees and complex tax and legal requirements. Because of these issues,
corporations are generally suggested for established, larger companies with multiple employees.
Advantages of a Corporation
Limited Liability: When it comes to taking responsibility for business debts and actions of a
corporation, shareholders’ personal assets are protected. Shareholders can generally only be held
accountable for their investment in stock of the company.
Ability to Generate Capital: Corporations have an advantage when it comes to raising capital
for their business - the ability to raise funds through the sale of stock.
Corporate Tax Treatment: Corporations file taxes separately from their owners. Owners of a
corporation only pay taxes on corporate profits paid to them in the form of salaries, bonuses, and
dividends, while any additional profits are awarded a corporate tax rate, which is usually lower
than a personal income tax rate.
Attractive to Potential Employees: Corporations are generally able to attract and hire high-
quality and motivated employees because they offer competitive benefits and the potential for
partial ownership through stock options.
Disadvantages of a Corporation
Time and Money: Corporations are costly and time-consuming ventures to start and operate.
Incorporating requires start-up, operating and tax costs that most other structures do not require.
Double Taxing: In some cases, corporations are taxed twice - first, when the company makes
a profit, and again when dividends are paid to shareholders.
Additional Paperwork: Because corporations are highly regulated by federal, state, and in
some cases local agencies, there are increased paperwork and recordkeeping burdens associated
with this entity.

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