Ch12n - Oct. 14, 2010 Accounting 220 (Holmes) Notes Ch. 12...

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Oct. 14, 2010 Accounting 220 (Holmes) Notes Ch. 12 Partnerships A partnership is an association of two or more persons to carry on as co-owners of a business for profit. Characteristics of a Partnership (p. 528) 1. Association of individuals o Legal and Accounting Entity Does not include owners personal assets, liabilities, and transactions o Can own Property, plant and equipment o Can sue or be sued o Taxable at personal tax rates (not as a separate entity) regardless of the amount of net income each withdraws from the business during the year. 2. Mutual Agency (p. 528) o Each partner acts on behalf of the partnership when engaging in partnership business. o The act of any partner is binding on all other partners 3. Limited Life (p. 529) o Partnership Dissolution: Can be ended voluntarily through: Acceptance of a new partner Withdrawal of a partner Business can continue if partners agree 4. Unlimited Liability (p. 529) o Each partner is personally and individually liable for partnership liabilities. Claims 1 st attach to partnership assets Claims 2 nd attach to personal resources of any partner - Regardless of partner’s equity 5. Co-Ownership of Property (p. 529) Each partners claim on total assets is equal to the balance in their respective capital account Does not attach owners to specific assets Net income or net loss is also co-owned - Unless specified all net income is shared equally by the partners Organizations with Partnership Characteristics (p. 529) Same accounting as regular partnerships Acct 220 Page 1
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All profits and losses pass through owners on their personal tax return Types: a. Limited Partnerships (Ltd., LP) (p. 530) Suitable for companies that invest in real estate (p. 531) General Partners - One or more partners have unlimited liability (p. 530) Limited Partners - One or more partners have limited liability (p. 530) Limited to their investment in the business (p. 530) Cannot get involved in management (risk liability protection if they do b. Limited Liability Partnership (LLP, (p. 530) 1. Suitable for old-line professions (p. 531) 2. Protects innocent partners from malpractice or negligence claims resulting from the acts of another person. (p. 530) c. Limited Liability Companies (LLC) (p. 530) Has a limited life Members = Owners – have limited liability (like a corporation) Can assume an active management role IRS classifies LLC as a partnership Advantages of Partnerships (p. 531) Regular Advantage: Simple and inexpensive to create and operate Relatively free from government regulations and restrictions Ease of decision making Disadvantage: Owners personally liable for business debts (unlimited liability) Limited Life Mutual agency Limited Partnership Advantage: Limited personal liability if they do not participate in management General Partners can raise cash w/o involving outside investors Disadvantage: Owners personally liable for business debt
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This note was uploaded on 10/18/2010 for the course ACCOUNTING 211 taught by Professor Holmes during the Spring '10 term at UMBC.

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Ch12n - Oct. 14, 2010 Accounting 220 (Holmes) Notes Ch. 12...

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