Partnership The term "partnership" has changed over the years, as business people have come to add new

features to the old business form. These new partnership types are intended to help mitigate the liability issues with partnerships. The three most used partnership types are listed here, with their features, to help you decide which type you might want to use. General Partnership A general partnership is a partnership with only general partners. Each general partner takes part in the management of the business, and also takes responsibility for the liabilities of the business. If one partner is sued, all partners are held liable. General partnerships are the least desirable for this reason. Limited Partnerships A limited partnership includes both general partners and limited partners. A limited partner does not participate in the day-to-day management of the partnership and his/her liability is limited. In many cases, the limited partners are merely investors who do not with to participate in the partnership other than to provide an investment and to receive a share of the profits. Limited Liability Partnerships A limited liability partnership (LLP) is different from a limited partnership or a general partnership, but is closer to a limited liability company (LLC). In the LLP, all partners have limited liability. An LLP combines characteristics of partnerships and corporations. As in a corporation, all partners in an LLP have limited liability, from errors, omissions, negligence, incompetence, or malpractice committed by other partners or by employees. Of course, any partners involved in wrongful or negligent acts are still personally liable, but other partners are protected from liability for those acts. In recent years, the limited liability company has supplanted the general partnership and the limited partnership, because of the limits of liability. But there are still cases in professional practices in which some partners want to be limited in scope of duties and they just want to invest, having the liability protection. This is a general overview of these partnership types; if you are considering forming a partnership, consult with your attorney or legal adviser.

Mutual agency In a partnership, the partners are agents for the partnership. As such, one partner may legally bind the partnership to a contract or agreement that appears to be in line with the partnership's operations. As most partnerships create unlimited liability for its partners, it is important to know something about potential partners before beginning a partnership. Although partners may limit a partner's ability to enter into contracts on the company's behalf, this limit only applies if the third party entering into the contract is aware of the limitation. It is the partners' responsibility to notify third parties that a particular partner is limited in his or her ability to enter into contracts. Unlimited liability Partners may be called on to use their personal assets to satisfy partnership debts when the partnership cannot meet its obligations. If one partner does not have sufficient assets to meet his/her share of the partnership's debt, the other partners can be held individually liable by the creditor requiring payment. A partnership in which all partners are individually liable is called a general partnership. A limited partnership has two classes of partners and is often used when investors will not be actively involved in the business and do not want to risk their personal assets. A limited partnership must include at least one general partner who maintains unlimited liability. The liability of other partners is limited to the amount of their investments. Therefore, they are called limited partners. A limited partnership usually has LLP in its name. Ease of formation Other than registration of the business, a partnership has few requirements to be formed. Transfer of ownership Although it is relatively easy to dissolve a partnership, the transfer of ownership, whether to a new or existing partner, requires approval of the remaining partners. Management structure and operations In most partnerships, the partners are involved in operating the business. Their regular involvement makes critical decisions easier as formal meetings are not required to get approval before action can be taken. If the partners agree on a change in strategy or structure, or approve a purchase of needed equipment, no additional approvals are needed. Relative lack of regulation Most governmental regulations and reporting requirements are written for corporations. Although the number of sole proprietors and partnerships exceeds the number of corporations, the level of sales and profits generated by corporations are much greater. Number of partners The informality of decision making in a partnership tends to work well with a small number of partners. Having a large number of partners, particularly if all are involved in operating the business, can make decisions much more difficult.

Characteristics of a Partnership A partnership is an unincorporated association of two or more individuals to carry on a business for profit. Many small businesses, including retail, service, and professional practitioners, are organized as partnerships. A partnership agreement may be oral or written. However, to avoid misunderstandings, the partnership agreement should be in writing. The agreement should identify the partners; their respective business-related duties and responsibilities; how income will be shared; the criteria for additional investments and withdrawals; and the guidelines for adding partners, the withdrawal of a partner, and liquidation of the partnership. For income tax purposes, the partnership files an information return only. Each partner shares in the net income or loss of the partnership and includes this amount on his/her own tax return. Limited life The life of a partnership may be established as a certain number of years by the agreement. If no such agreement is made, the death, inability to carry out specific responsibilities, bankruptcy, or the desire of a partner to withdraw automatically terminates the partnership. Every time a partner withdraws or is added, a new partnership agreement is required if the business will continue to operate as a partnership. With proper provisions, the partnership's business may continue and the termination or withdrawal of the partnership will be a documentation issue that does not impact ongoing operations of the partnership.

Business Partnership Advantages Partnerships are relatively easy to establish. With more than one owner, the ability to raise funds may be increased, both because two or more partners may be able to contribute more funds and because their borrowing capacity may be greater. Prospective employees may be attracted to the business if given the incentive to become a partner. A partnership may benefit from the combination of complimentary skills of two or more people. There is a wider pool of knowledge, skills and contacts.

 Partnerships can be cost-effective as each partner specializes in certain aspects of their business. Partnerships provide moral support and will allow for more creative brainstorming. Business Partnership Disadvantages

accounting system does not usually matter when relating to sole proprietorships. Business owners have wide flexibility to create a general ledger that works best for their sole proprietorship organization. The general ledger can include several sub-ledgers and journals. Small business owners may only need a cash receipts and disbursements journal to keep track of money coming in and going out of the business. Function

Business partners are jointly and individually liable for the actions of the other partners.

The Internal Revenue Service requires sole proprietorship income to be reported on the business owners individual income tax form. Business Profits must be shared with others. You have to decide on how you value owners usually fill out a separate form outlining the companys income, each others time and skills. What happens if one partner can put in less time expenses and assets to calculate the amount of income earned during the due to personal circumstances? calendar year. This process is known as flow-through taxation. Sole proprietorships offer business owners a significant advantage because Since decisions are shared, disagreements can occur. A partnership is for personal income tax rates are usually much lower than business tax rates. the long term, and expectations and situations can change, which can lead to dramatic and traumatic split ups. Expert Insight The partnership may have a limited life; it may end upon the withdrawal or death of a partner. A partnership usually has limitations that keep it from becoming a large business. You have to consult your partner and negotiate more as you cannot make decisions by yourself. You therefore need to be more flexible. A major disadvantage of a partnership is unlimited liability. General partners are liable without limit for all debts contracted and errors made by the partnership. For example, if you own only 1 percent of the partnership and the business fails, you will be called upon to pay 1 percent of the bills and the other partners will be assessed their 99 percent. However, if your partners cannot pay, you may be called upon to pay all the debts even if you must sell off all your possessions to do so. This makes partnerships too risky for most situations. The answer would be a different business structure. Public accounting firms or individual certified public accountants can help business owners set up their sole proprietorship accounting system. These individuals often have a wide range of expertise and knowledge in business accounting. Business owners can maintain basic accounting records during business operations and turn this information over to professional accounts for tax preparation. Using professional accountants for tax preparation often help business owners limit their tax liability.

Accounting for a Sole Proprietorship Overview A sole proprietorship is a form of business organization. Many small business owners start their new business venture as a sole proprietorship. Sole proprietorships are simple business organization and do not usually require extensive amounts of paperwork to start. Accounting is also easier for sole proprietorship organizations. Business owners with little or no accounting background can usually maintain their companys financial records using a few basic practices. Facts Sole proprietorships do not require business owners to set up a large business organization. Owners can obtain a business license, state sales tax permit and other industry permits required for their business. These documents will effectively begin official business operations for a sole proprietorship. Sole proprietorships hiring employees or using independent contractors will often need a federal identification number for tax purposes. Business owners may also need to obtain business or general liability insurance for their company. Considerations Accounting for sole proprietorships does not usually require individuals to maintain separate records for their business and personal assets. The reason is the business cannot exist in the absence of the owner. However, small business owners should seriously consider is separating business and personal records. This provides business owners with separate information relating to their companys profit and losses. Business owners needing to earn a salary from their business can simply make owner withdrawals. Features Business owners often use a separate bank account and accounting ledger when operating their sole proprietorship. The type or style of