Question 2 A partnership is formed when there are two or more owners in a business. The business agreement between the two or more people is known as partnership, and they are called as partners. They formed a partnership to engage in a number of different ventures and share the profits and liabilities of the business ventures. Personally, each and every partner possesses a share of the business. But not every partner is necessarily to involve in the daily operations and management of the venture. Forming partnerships do not require many formalities. Compared to a corporation, this is a less costly business structure and is more flexible. One of the attractive feature of a partnership is that it can avoid double taxation that is incurred through a corporation because all profits and losses in partnerships are directly passed to the partners. Two of the most popular types of partnership structures are general partnerships and limited partnerships. Each of it has its unique characteristics, advantages and disadvantages. A general partnership is an agreement between two or more owners that share equally in profits and liabilities for the business. As owners of a partnership that have unlimited liability, they are called as general partner. Usually, a general partner is also a managing partner and actively involved in the daily operations of the business. In a general partnership, each partner holds an equal share of the business and has full power to act as an agent of the business, which means that he or she can make business decisions on behalf of the partnership. Each partner will have equal authority, unless the partners have a partnership agreement. Being a general partner offers poor asset protection, because any partner in the partnership can make decision on behalf of the business without the permission or knowledge of the other partners. The agreement of a general partnership can be as a verbal agreement or a formalized contractual agreement between partners. Partnerships can be formed on the basis of an oral agreement, but for protection purpose, it is better to have the agreement documented. A partner’s personal assets may be subject to liquidation if he or she is required to meet the partnership's financial obligations. General partners are accountable for the company's solvency and liabilities. Unlimited liability rests on each general partner, even if one partner is solely liable for any financial problems or illegal activities. Partners in a general
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- Fall '19
- Corporation, Limited partnership, Types of business entity, partner