Partnerships

By Dylan Mathwig and Shane Trovalli

What Is a Partnership?

A business that has two or more owners who agree to share profits and are liable for any debts or losses.

Well Known Examples:

Apple Inc.

Founder: Steve Jobs and Steve Wozniak

Year: 1976

Location: Cupertino, California

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THE APPLE STORY in MOTION DESIGN

Microsoft

Founders: Bill Gates and Paul Allen

Year: 1975

Location: Seattle, Washington

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Twitter

Founders: Jack Dorsey, Evan Williams, Biz Stone, and Noah Glass
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Google

Founders: Larry Page and Sergey Brin

Year: 1998

Location: Mountain View, California

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Ben and Jerry's

Founders: Ben Cohen and Jerry Greenfield

Year: 1978

Location: Burlington, Vermont

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Liability:

The advantage for these limited partners is that they are not personally liable for business debts.

Advantages and Disadvantages

Advantages-

  • two heads (or more) are better than one

  • your business is easy to establish and start-up costs are low

  • more capital is available for the business

  • you’ll have greater borrowing capacity

  • high-calibre employees can be made partners

  • there is opportunity for income splitting, an advantage of particular importance due to resultant tax savings

  • partners’ business affairs are private

  • there is limited external regulation

  • it’s easy to change your legal structure later if circumstances change.

Disadvantages-

  • the liability of the partners for the debts of the business is unlimited

  • each partner is ‘jointly and severally’ liable for the partnership’s debts; that is, each partner is liable for their share of the partnership debts as well as being liable for all the debts

  • there is a risk of disagreements and friction among partners and management

  • each partner is an agent of the partnership and is liable for actions by other partners

  • if partners join or leave, you will probably have to value all the partnership assets and this can be costly.

Profits and Losses

Profits- If a Partnership company prospers, all partners prosper and make profits.

Losses- If a Partnership company fails, all partners have to split the losses and equally pay back their debts. Amount of debt can be determined by number of partners and amount of debt owed.

Taxation

  • Generally, the IRS does not consider partnerships to be separate from their owners for tax purposes; instead, they are considered "pass-through" tax entities. This means that all of the profits and losses of the partnership "pass through" the business to the partners, who pay taxes on their share of the profits (or deduct their share of the losses) on their individual income tax returns. Each partner's share of profits and losses is usually set out in a written partnership agreement.

Sources:

http://visual.ly/8-famous-business-partnerships-really-worked

McNair, Frances, and Edward E. Milam. "The limited liability company: an idea whose time has come." Management Accounting [USA] Dec. 1994: 30+. General OneFile. Web. 22 Sept. 2014.