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Business Partnership vs. Limited Partnership

Use the following list as a guide. Evaluate the risks involved in conducting business partnership (general partnership) versus a limited partnership.

1. type of ownership
2. exposure of ownership to liability
3. taxation
4. continuity of existence
5. formality in operations
6. managerial control

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RESPONSE:

A Partnership is an agreement in which you and one or more people combine resources in a business with a view to making a profit. There are two types of partnerships: general partnerships and limited partnerships (LPs).

1. General Partnership

(1) Type of ownership - In a General Partnership, you and one or more other owner would share the management of a business, and each partner would be personally liable for all debts and obligations incurred (e.g., unlimited liability). This means that each partner is responsible for, and must assume the consequences of the actions of the other partner(s).

(2) Exposure of ownership to liability - Unlimited liability as discussed above. In a general partnership, each partner can incur obligations on behalf of the partnership, and each assumes unlimited liability for the partnership's debts. This is why limited partnership is often chosen (http://www.allbusiness.com/business-planning-structures/business/1303-1.html).

(3) Taxation - Possible tax advantages - a general partnership pays no federal income tax. Each general partner is required to declare his share of partnership income or loss on his individual tax return (http://www.antiventurecapital.com/securitieslaw%20business%20forms.html).

(4) Continuity of existence - General partnerships lacks continuity because the death or withdrawal of a general partner, or the expiration of the term of the general partnership, will dissolve the partnership. Continuation of the partnership following such events may be dealt with, however, in the partnership agreement. Since a partnership is generally a "voluntary" association, any general partner who no ...

Solution Summary

This solution evaluates the risks involved in conducting business partnership (general partnership) versus a limited partnership on the following: 1. type of ownership, 2. exposure of ownership to liability, 3. taxation, 4. continuity of existence, 5. formality in operations, and 6. managerial control.

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