Unit 4 Microeconomics:Business and Labor

Chapters 8.2

EconomicsMr. Biggs

Partnership - A business organization owned by two or more persons who agree on a specific division of responsibilities and profit.7% of all businesses are partnerships.

Types of PartnershipsPartnerships fall into three categories:

General partnershipsLimited partnershipsLimited liability partnerships

Partnerships

General PartnershipGeneral partnership - Partnership in which partners share equally in both responsibility and liability.General partnerships are often formed by doctors, lawyers, and other professionals.

Limited PartnershipLimited partnership - Partnership in which only one partner is required to be the general partner.The other partners, who just contribute money, can lose only their initial investment and do not manage the business.

Limited Liability Partnerships (LLP)Limited liability partnership (LLP) - All partners are limited from personal liability in certain situations. These are allowed only for attorneys, accountants, etc.

Advantages of PartnershipsPartnerships share the responsibility for the business, are easy to establish, and are subject to few government regulations.They provide entrepreneurs with a number of advantages:

Ease of Start-Up Partnerships are easy and inexpensive to establish and have little government interference.Articles of partnership - A partnership agreement that is not required but is recommended.It outlines profit splitting, duration of partnership, etc. If articles of partnership are not used, the Uniform Partnership Act (UPA) defines the partner relationship.

Shared Decision Making and SpecializationThe responsibility for the business is shared and each partner brings different strengths and skills to the business.

Larger Pool of CapitalA variety of assets improves a firms ability to borrow funds for operations or expansion.Assets - Money and other valuables belonging to an individual or business.

TaxationPartners only pay taxes on their share of the income that the partnership generates.The business itself does not have to pay taxes.

Disadvantages of PartnershipAll partnerships have disadvantages, but LLP partnerships have the fewest disadvantages.

Unlimited LiabilityUnless the partnership is an LLP, at least one partner has unlimited liability and could lose everything, including personal property, in paying the firm’s debts.

Potential for ConflictPartners need to ensure that they agree about work habits, goals, management styles, ethics, and general business philosophies.Many partnerships dissolve because of interpersonal conflicts.

The End