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Follow-Up Discussion
To participate in follow-up discussion, comment on your classmates’ posts. Your initial post should be approximately 250 words and cite at least one reference used in preparing your response.
Denise’s post (classmates post below)
A partnership is a type of business organization where two or more entities own a business and share in the control of the business. One of the disadvantages to a partnership is that each partner has no limit on their personal liability for the debts of the business. A partner may have to use personal assets to pay off debts of the company. The partners are also jointly and severably liable for business debts (Hinson, n.d.). So if one partner cannot pay his share of debts, a creditor can collect everything from the other partner.
The advantages of forming a partnership is that it allows resources to be pooled(Jeter & Chaney, 2012). One may not be able to afford to form a business on her own, but with a partner she may have the means. They are also easy to form and there may be tax advantages since each partner files the profit and loss of the company on her own tax return.
A limited partnership differs from a general partnership in that it requires an agreement. Certain information about the business must be filed with the state agency (Hinson, n.d.). The partner that is limited is not totally liable for the debts of the partnership (Hinson, n.d.). The most a limited partner can lose is its investment in the business. Her personal assets are not in danger as in a general partnership. The general partner runs the business; the limited partner has no say in the day to day operations. As in a general partnership, the general partner of a limited partnership is totally liable for the debts of the business.
Hinson, C. (n.d.). The difference between a partnership and a limited partnership: Which is better for your business? A partnership or limited partnership? Retrieved August 14, 2017, from All Law: http://www.alllaw.com/articles/business_and_corporate/article12.asp
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Expert Answer
Solution:
1. General Partnership: The Partnership is a form of business organization under which two or more person start a business with common interest as well as liable to share profits and losses from the same business they have initiated. This is one of the easiest ways to start a business when you do not require any written contract to start your business. In addition, the general partnership firm is not coming under the purview of laws or business governance. The best part of the partnership business, it is not subjected to income tax and the whole tax burden passed on to the partners. Therefore, no concept of double taxation on the partners who are running a business. On the contrary, the riskiest element of partnership firm is unlimited liability i.e. in the case of losses and liquidation, there is no limit of debt on partners. They have to sell their personal property too despite the fact that property is not the part of the partnership.(Source: Nolo.com FAQ)
2. Limited partnership Firm: The limited partnership firm is same as a general partnership with little differences. It is also a form of business organization but unlike a general partnership, it requires a formal contract between the partners in consideration to the sharing of capital, profits, and losses etc. In addition, it is limited by nature i.e. the liability of the partners is limited to some extent and there is no risk to sell personal property afterward.(Source: Allbusiness.com)
3. Limited partnership is better than general partnership in the following matter:-
> It is a more organized form of business structure in comparison to general partnership i.e. formal contract between partners which will avoid the conflict later on many issues like sharing of capital, profits, and losses.
> The liability of partners are limited unlike more risk in case of general partnership i.e. unlimited liability.
> It offers same tax advantage as a general partnership.
From the above points, we can state that limited partnership is more comprehensive than a general partnership.(Source: Investopedia)
