Business Life Insurance Part VI - Partnerships - What is Business Partnerships and Their Liabilities
Beside sole proprietorship, the second type is partnerships. A partnership is a business that is owned by two or more individuals who come together in a commercial endeavor to mutually profit from the joint venture. They may each have similar or different talents. Partnerships carry on business in common with a view to profit, all members in the partnerships have joint and several liability and each member can bind all member by their business decisions.
There are 2 types of partnerships
1. Commercial partnerships
a) General partnerships
In a general partnership,
i) All major decisions require unanimous consent.
ii)Day-to-day decisions are delegated to an individual.
iii) All partners have equal right
iv) Any member has the right to exam the partnership book.
v) Each partner is an agent of the partnership and business decisions are legally binding on them all.
vi)In the event that a partner assigns their business interest as collateral, the assignee does not become a partner, but does have the right to the partner's share of the profits and wind-up assets or liabilities.
b) Limited partnerships.
The limited partner's liabilities are limited to the amount of investment they provide. They can contribute capital to the firm as an investment and are entitled to a return on their investments as well as a portion of the profits. However, they have no authority to transact business for the firm or bind it. They can give counsel and have the right of examination. Therefore There is no ownership of individual property, only a partnership interest in the firm.
Each partner responsible for keeping track of receipts and expenses received on behalf of the firm, profits - combined return on capital and labor and private profits - profits arising from any partnership transaction that resulted in personal profit.
2. Professional partnerships
The main difference is how the partnership interest and their assets are evaluated at death or withdrawal from the practice. The major problem is the valuation of goodwill. In essence, part of the goodwill was generated by the deceased or withdrawing partner, but the remaining growth was from the contributions of the remaining partners.
Liabilities of partnerships
Each partner is liable jointly with all the other partners for debts and obligations of the partnership, responsible for each others partner's debts and obligations. New Partners is not responsible for prior liability of partnership, unless by agreement. Retiring Member is liable for pre-retirement liabilities, unless agreed upon otherwise.
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