1. Define partnershipgivenin civil code
By the contract of partnershiptwoormore personsbindthemselvestocontribute money,property,or
industrytoa commonfund,withthe intentionof dividingthe profitsamongthemselves.
A partnershipisdifferent fromacorporationinmany ways.First,there isno time limitforthe existence
of the partnershipasthisdependsonthe agreementof the parties.Onthe otherhand,acorporation
can existfora periodnotexceedingfifty(50) years.Second,astothe beginningof juridical personality,a
partnershipbecomesajuridical personfromthe time the contractbeginswhile inacorporation,itonly
becomesajuridical personuponregistrationwiththe Securities&Exchange Commission(SEC).Third,
althougha partnermay transferhisinterestinapartnershiptoanother,the transferee doesnot
automaticallybecome apartnerunlessall the otherpartnersgive theirconsent.However,in
corporations,whenthe sharesof stockare transferredtoanother,the transferee becomesa
stockholderof the corporation.Fourth,asto liabilitytothirdpersons,partnersmaybe heldliable with
theirprivate andpersonal propertywhile incorporations,the stockholdersare generallyliableonlyto
the extentof theirsubscribedcapital stock.Lastly,apartnershipmaybe dissolveddue tothe insolvency,
civil interdiction,death,insanityorretirementof anyof the partnerswhile suchgroundsdonot dissolve
a corporation.
Like a corporation,a partnershiphasa separate juridical personality.Evenif the partnershipfailedto
registerwiththe SEC,itstill hasa separate juridical personality.Thus,the partnership,asa separate
personcan acquire itsownproperty,bringactionsincourt inits ownname and incurits ownliabilities
and obligations.A partnershipactionisembodiedinaPartners’Resolutionwhichissimilartoa
corporation’sBoardResolution.
Enumerate and discussthe characteristics of partnership
Limitedlife
The life of a partnershipmaybe establishedasa certainnumberof yearsbythe agreement.If nosuch
agreementismade,the death,inabilitytocarry out specificresponsibilities,bankruptcy,orthe desire of
a partner to withdrawautomaticallyterminatesthe partnership.Everytime apartnerwithdrawsoris
added,a newpartnershipagreementisrequiredif the businesswill continue tooperate asa
partnership.Withproperprovisions,the partnership'sbusinessmaycontinue andthe terminationor
withdrawal of the partnershipwill be adocumentationissue thatdoesnotimpactongoingoperationsof
the partnership.
Mutual agency
In a partnership,the partnersare agentsforthe partnership.Assuch,one partnermay legallybindthe
partnershiptoa contract or agreementthatappearsto be in line withthe partnership'soperations.As
mostpartnershipscreate unlimitedliabilityforitspartners,itisimportanttoknow somethingabout
potential partnersbeforebeginningapartnership.Althoughpartnersmaylimitapartner'sabilityto
2. enterintocontracts onthe company'sbehalf,thislimitonlyappliesif the thirdpartyenteringintothe
contract is aware of the limitation.Itisthe partners'responsibilitytonotifythirdpartiesthataparticular
partneris limitedinhisorherabilitytoenter intocontracts.
Unlimitedliability
Partnersmay be calledonto use theirpersonal assetstosatisfypartnershipdebtswhenthe partnership
cannot meetitsobligations.If one partnerdoesnothave sufficientassetstomeethis/hershare of the
partnership'sdebt,the otherpartnerscanbe heldindividuallyliablebythe creditorrequiringpayment.
A partnershipinwhichall partnersare individuallyliableiscalledageneral partnership.A limited
partnershiphastwoclassesof partnersand isoftenused wheninvestorswillnotbe activelyinvolvedin
the businessanddonot wantto risktheirpersonal assets.A limitedpartnershipmustincludeatleast
one general partnerwhomaintainsunlimitedliability.The liabilityof otherpartnersislimitedtothe
amountof theirinvestments.Therefore,theyare calledlimitedpartners.A limitedpartnershipusually
has LLP inits name.
Ease of formation
Otherthan registrationof the business,apartnershiphasfew requirementstobe formed.
Transferof ownership
Althoughitisrelativelyeasytodissolveapartnership,the transferof ownership,whethertoanewor
existingpartner,requiresapproval of the remainingpartners.
Managementstructure andoperations
In mostpartnerships,the partnersare involvedinoperatingthe business.Theirregularinvolvement
makescritical decisionseasierasformal meetingsare notrequiredtogetapproval before actioncanbe
taken.If the partnersagree on a change instrategyor structure,or approve a purchase of needed
equipment,noadditionalapprovalsare needed.
3. Relative Lackof regulation
Most governmental regulationsandreportingrequirementsare writtenforcorporations.Althoughthe
numberof sole proprietorsandpartnershipsexceedsthe numberof corporations,the level of salesand
profitsgeneratedbycorporationsare muchgreater.
Numberof partners
The informalityof decisionmakinginapartnershiptendstoworkwell withasmall numberof partners.
Havinga large numberof partners,particularlyif all are involvedinoperatingthe business,canmake
decisionsmuchmore difficult.
Advantages of partnershipover sole proprietorshipand corporation
Sole Proprietorship
A sole proprietorshipisabusinessownedbyonlyone person.The mostcommonformof ownership,it
accounts forabout 72 percentof all U.S. businesses[1].It’sthe easiestandcheapesttype of businessto
form:if you’re usingyourownname as the name of your business,youjustneedalicense toget
started,andonce you’re inbusiness,you’re subjecttofew governmentregulations.
AdvantagesandDisadvantagesof Sole Proprietorships
As sole owner,youhave completecontrol overyourbusiness.Youmake all importantdecisions,and
you’re generallyresponsible forall day-to-dayactivities.Inexchange forassumingall thisresponsibility,
youget all the income earnedbythe business.Profitsearnedare taxedaspersonal income,soyoudon’t
have to pay anyspecial federal andstate income taxes.
4. For manypeople,however,the soleproprietorshipisnotsuitable.The flipsideof enjoyingcomplete
control,forexample,ishavingtosupplyall the differenttalentsthatmaybe necessarytomake the
businessasuccess.Andif youdie,the businessdissolves.Youalsohave torelyon your ownresources
for financing:ineffect,youare the business,andanymoneyborrowedbythe businessisloanedtoyou
personally.Evenmore important,the sole proprietorbearsunlimitedliabilityforanylossesincurredby
the business.As youcansee from Figure 1,the principle of unlimitedpersonal liabilitymeansthatif the
companyincursa debtor suffersacatastrophe (say,gettingsuedforcausinganinjuryto someone),the
ownerispersonallyliable.Asasole proprietor,youputyourpersonal assets(yourbankaccount,your
car, maybe evenyourhome) atrisk forthe sake of your business.Youcanlessenyourriskwith
insurance,yetyourliabilityexposurecanstill be substantial.GiventhatBenandJerrydecidedtostart
theirice cream businesstogether(andtherefore the businesswasnotownedbyonlyone person),they
couldnot settheircompanyup as a sole proprietorship.
4. Advantagesof PartnershipoverCorporation
The partnershipitself doesnotpaytaxesonits earnings, butthe distributionsto
the partnersare subjecttoincome tax.On the otherhand,corporationspay
income taxesonthe profitsthe corporationearns.Profitsdistributedto
shareholders,aswellassalariespaid,are subjecttopersonal income tax forthe
recipient.
Partnershipsare subjecttofewerregulationsthancorporations.
A partnershipiseasiertosetupand has lesspaperwork,legalrequirements,and
tax obligationsthana corporation.
5. Disadvantagesof Partnership
sforthe debtsof the businessisunlimited.Partnermaybe
responsible fordecisionsyourotherpartnermakesinconnectionwiththe
business.
as youwill have tovalue thatperson's assetsplus
replace anessential personwhohastakenona lotof liability/responsibility
-makingand
decrease profits.
5. 6. Distinctionsbetweenapartnershipandcorporation
– Partnershipiscreatedbyoral or writtenagreement
betweentwoormore personwhile corporationiscreatedbylaw ory operation
of law.
– Everypartneris an agentof the partnershipwhenthere isnothing
agreeduponinmanagingthe partnership.
–A partnershipmaybe dissolvedatanytime by the will f anyor all of
the partners.In corporation,itcan onlybe dissolvedwiththe consntof the state.
- The partners share the liabilityandtheyare directlyresponsible incase
of fault.The stockholdersare notheldresponsible incase of a fault,the
corporationis.
7. Kindsof Partners
–the one who contributesmoneyorpropertytothe common
fund.
–the one whocontributesonlyhisindustryorpersonal service.
–who liabilitytothirdpersonsislimitedtohiscapital
contribution.
– the one whose liabilitytothirdpersonsextendstohispersonal
property.He may be industrial orcapitalistpartner.
–the one whocontinuesthe businessof apartnershipafterit
has beendissolve bythe reasonof admissionof new partner,death,retirement.
–the e whoremainsafterthe partnershiphasbeendissolved.
– the one who managesthe affairsorbusinessof the
partnership.
