Name: Amina Shakoor

Roll no: 21111041099

Member # 2
Question: 2
Describe the difference between general and limited partners, and compare the advantages and
disadvantages of partnerships.
Answer: PARTNERSHIPS
A partnership is a legal form of business with two or more owners. There are several types:
1. General partnerships
2. Limited partnerships
3. Master limited partnerships
In a general partnerships all owner are in operation the business and in assuming liability for the business
debts. A limited partnership has one or more general partners and one or more limited partners. A general
partner is an owner (partner) who has unlimited liability and is active is managing. A limited partner is an
owner who invests money in the business but doesn’t have any management responsibility or liability for
losses beyond his or her investment. Limited liability means that the limited partners for the debts of the
business is limited to the amount they put into the company their assets are not are at the risk.
One form of partnership the master limited partnership, looks much like a corporation in that it acts like a
corporation and is traded on the stock exchanges like a corporation, but is taxed like a partnership and
thus avoids the corporate income tax. Master limited partnerships are normally found in the oil and gas
industry. For example, Sunoco Inc., formed the MLP Sunoco Logistic Partners SXL to acquire own and
corporate the group of crude oil and refined product pipelines and storage facilities. Income received by
SXL is not taxed before it is passed on to investors as dividends as it would be if SXL were a corporation.
Another type of partnership was created to limit the disadvantages of unlimited liability. A limited
liability LLP limits partner’s risk of losing their personal assets to the outcome of only their own acts and
omissions and those of people under their supervision. If you are a limited partner in an LLP, you can
operate without the fear that one of your partners might commit an act of malpractice resulting in a
judgment that takes away your house, vary retirement plan, even your collection of vintage star wars
action figures, as would be the case in a general partnership. However in many states this personal
protection doesn’t extend to the contract liabilities such a bank loans, leases, and business debt the
partnership take on; loss of personal assets is tail a risk if these are not paid. In states without additional
contract liability protections for LLPs, the LLP is in many ways similar to an LLC.
All states except Louisiana have adopted the Uniform Partnership Act to replace earlier laws governing
partnerships. The UPA defines the three key elements of any general partnership as;
1. Common ownership
2. Shared profits and losses
3. The right to participate in managing the operations of business.
ADVANTAGES OF PARTNERSHIPS
Often, it is much easier to own and manage a business with one or more partners. Your partner may be
skilled at inventory control and accounting, while you do the selling or servicing. A partner can also
provide additional money, support, and expertise as well as cover for you when you are sick or in
vacation.
Partnerships usually have the following advantages:
1. More financial resources. When two or more people pool their money and credit, it is easier to
pay the rent, utilities, and other bills incurred by a business. A limited partnership is specially
designed to help raise the money. As mentioned earlier, a limited partner invests money in the
business but cannot legally have management responsibility and has limited liability.
2. Shared management and pooled/complementary skills and knowledge. It is simply much easier to
manage the day to day activities of a business with carefully chosen partners. Partners give each
other free time from the business and provide different skills and perspectives. Some people find
the best is a spouse. Many husband and wife teams manage restaurants, service shops, and other
business.
3. Longer survival. Partnerships are more likely to succeed than sole proprietorships because being
watched by a partner can help a businessperson become more disciplined.
4. No special taxes. As with sole proprietorships, all profits of partnerships are taxed as the personal
income of the owners, who pay the normal income tax on that money. Similarly, partners must
estimate their taxes and make quarterly payments or suffer penalties for nonpayment.
DISADVANTAGES OF PARTNERSHIPS
Anytime two people must agree, conflict and tension are possible. Partnerships have caused splits
between relatives, friends, and spouses. Let’s explore the disadvantages of partnerships:
1. Unlimited liability. Each general partner is liable for the debts of the firm, no matter who was
responsible for causing them. You are liable for your partner’s mistakes as well as your own.
Like sole proprietors, general partners can lose their homes, cars, and everything else they own if
he business losses a lawsuit or goes bankrupt.
2. Division of profits. Sharing risks mean sharing profits, and that can cause conflicts. There is no
set system for diving profits in a partnership, and they are not always divided evenly. For
example, if one partner puts more money and the other puts in more hours, each may feel justified
in asking for bigger share of the profits.
3. Disagreements among partners. Disagreements over money are just one example of potential
conflict in a partnership. Who has final authority over employees? Who works what hours? What
if one partner wants to buy an expensive equipment and the other partner disagrees? All the terms
of partnership should be spelled out in writing to protect all parties and minimize
misunderstandings. The making ethical decisions box offers an example of opinions between
partners.
4. Difficulty of termination. Once you have committed yourself to a partnership, it is not easy to get
out of it. Sure, you can just quit. However, questions about who get what and what happens next
are often difficult to resolve when the partnership ends. Surprisingly, law firms often have faulty
partnership agreements and find breaking up is hard to do. How to get rid of a partner you don’t
like? It is best to decide such questions up front in the partnership agreement.
The best way to learn about the advantages and disadvantages of partnerships is to interview several
people who have experience with them. They will give you insights and hints on how to avoid problems.
One fear of owning your own business and having a partner is the fear of losing everything you own if
someone sues the business or it loses a lot of money. Many businesspeople try to avoid this and the other
disadvantages of sole proprietorships and partnerships by forming corporations.