Forms of Business Partnership - Essay Example

30th April There are various forms of business partnership such as, a general partnership, limited partnership, limited liability partnership, Limited Liability Company and corporation (West's Encyclopedia of American Law, 4). Every form of partnership depends on different factors which include the cost incurred when forming the business, business requirements in terms of resources, Government limitations, tax reflection and elasticity of management decisions. Retail business The formation of a retail business entails voluntary alliance of persons who plan to carry out a business for profit maximization purposes (West's Encyclopedia of American Law, 2). The basis of partnership can be made legal by either the word of mouth or through a written agreement. The partnership agreement administers the partner’s relation to each other and to the partnership. The agreement Partnerships between members of the family as in this case are viewed in a different perspective by the law. If the family members are to share in the profits it will be clear that they have a partnership, however, if they are to receive some share of the profits as repayment of debts, or wages the relation is termed as protected partnership, and there will be no legal indication that a business partnership exists. If the family members are to conduct any retail business, there will be clear evidence of an existence of a general partnership. The formation of the partnership is associated with certain rights and duties among the members and with third parties (Cheeseman, 257). Therefore, under this case, each partner will have a right to share in the profits, and also contribute equally incase of a loss, unless the partnership agreement will have been otherwise stated. Additionally, each partner is allowed to take part equally in the supervision of the company partnership. Incase of a dispute, the majority vote rules. Nonetheless, under a partnership, each member is entailed to the duty of Good faith, and loyalty (West's Encyclopedia of American Law, 7). That is, each partner is required to account to the other partners for any benefit that one receives when engaged in the business partnership. Under the duty of loyalty, no partner is permitted to use the partnership property for ones own personal gains. Also, the partners are not to engage in any business that competes with the partnership. In reference to the contribution of funds as the parents’ idea of 2 million, the contributed resources towards the growth of the business, becomes owned by all members under partnership (West's Encyclopedia of American Law, 20). In addition, any other property that is to be purchased by any partner using the partnership assets automatically becomes partnership property and is held under the partnerships name as indicated by RUPA. Transfer of property is only possible under the name of the partnership and, and the partnership property cannot be sold without the consent of members of the partnership. In terms of liability, each member of the partnership is liable to the obligations of the partnership. That is, each partner is equally liable for the unlawful acts or blunder of a member-if the act is committed while the partner is acting under the authority of the other members, or on behaves of the partnership. In UPA Section 15(a) it is said that associates are jointly and severally responsible for the torts and violation of trust. (Cheeseman, 258) Under this a third party can sue one or more associates independently, “CASE 14.2 Tort Liability of General Partners Zuckerman v. Antenucci” (Cheeseman, 256). Despite the fact that a partner caught on the wrong is sued individually, the partnership agreement provides for the compensation of the partner for the fraction of damages in surplus of ones relative share of the business. Any member in the business partnership will be perceived as an agent of the partnership. That is, each member has the authority to act on behave of the business, and a members admission concerning the partnership’s affairs is considered as an admission of the partnership. However, a member many bind the partnership only when conducting the usual partnership business. Also, if any third party is aware that an associate is not endorsed to act for the business, the partnership is not liable for the partner’s authorized acts. When it comes to taxation, each member of the partnership gets to be taxed separately. That is, tax is on ones proportional share of partnership profits termed as “pass-through”. Nonetheless, a member of a business partnership is entitled to accounting of the company’s financial affairs at any one time, when still in the partnership or after dissolution of the partnership. However, the associates are not permitted to sue the partnership at law. An action of accounting is a formal judicial proceeding is in which the court can authorize to both review the partnership and partner’s account and also award each member of the partnership their share of the assets [UPA Section 24] (Cheeseman, 259). To partner in a business can either be within a specified period of time or none at all (Cheeseman, 259). For example, it can be either for five years or indefinitely, termed as a partnership for a term or partnership at will respectively. A partnership at formed for a specified period of time dissolves automatically after the term comes to an end. However, partnership at will can be dissolved by any partner who wills to withdraw from the partnership whereby one is entitled to compensation for one services and a share of the assets [UPA, Section 18(f)]. However, after the partnership is dissolved, each of the members is legally responsible for the amount outstanding and compulsions of the business that existed at the time of dissolution. Nonetheless, if only one partner lives the partnership and the rest are left, the outgoing partner is legally responsible for shortcomings of the partnership at the time of the dissolution. Despite the fact that any partner has the right to withdraw from the entity of partnership, any partner who withdraws from a partnership before the due time has no right to dissolve the partnership. Such an action will be considered as a wrongful dissolution of the partnership. Therefore, any damages that will be encountered will be liable to the withdrawing partner. Mining venture and a farm To venture in a speculative mining venture, it requires the family to form a limited partnership, which includes both general partners as managers and the limited partners as the investors. The latter will only invest their capital in the business but they neither participate in the managing of the company nor do they share or bear the debts encountered in the partnership. The former, can invest in capital, manage the company and also bears the debts of the partnership. The number of the family members to be involved in the formation of the partnership is excellent, since for the formation of a limited partnership, more than two general partners are required and the same case applies to the number of the limited partners [RULPA Section 101(7)] (Cheeseman,260). The formation of a limited partnership requires open revelation and complying with the statutes. The partnership is also entitled to the signing of a certificate of limited partnership [RULPA Sections 201, 206]. It is only when a business certificate is filed with the secretary of the respective state that the limited partnership is declared to have been formed. In management the general partners have the right to manage the activities of the limited partnership as opposed to the limited partners (Cheeseman, 262). They can stipulate the goals of the partnership; enter into contracts, such for more employees which is the direct opposite of the limited partners. A limited partnership is required to draft and execute a limited partnership agreement (Cheeseman, 261). This agreement stipulates the rights and duties of each of the various partners. It also acts as a direction on how profits are to be allocated between the general and the limited partners. A limited partner is not accountable for any losses outside ones capital involvement. However, the involvement of a limited partner in the management and control of the partnership can lead to the loss of ones protection against private liability. The only way to go about it is by being the outworker of the general partner, terminating the limited partnership or by conferring with the general partner in respect to the partnership [RULPA Section 303(a)] (Cheeseman,262) Limited partners unlike the general partners have fixed term of duration. Additionally, they are also required to file a certificate with the respective state of authority that shows their name, personality of the limited partnership’s business, the names of the general and the limited partners as well as the dates on which the limited partners will disband. The limited partners are necessary especially when the business needs more capital from external creditors like the banks; in this case, the parents who are offering to invest in 2 million in the business and borrow the rest of the amount from the bank. The banks do not rely on the business history when extending credit to the business but rely on the limited partners of the partnership. On the other hand, general partners have infinite legal responsibility for the amount overdue and responsibilities of the limited partnership (Cheeseman, 262). This responsibility goes beyond the amount overdue that cannot be fulfilled with the existing capital of the limited partnership. A limited partnership can dissolve its partnership just like the general partnership. The only difference is that a limited partnership has to file a certificate of cancellation with the secretary of the respective state in which the limited partnership is organized (Cheeseman, 262). Upon the disablement of the limited partnership, the creditors have their first priority, then partners whose distribution has not been paid as well as the capital contributions. The advantages and disadvantages of a general partnership General partnership is an ideal way of setting venturing in a business in respect to the family in question. The reason being that, the children will be able to have something, that they call their own as long as the parents agree to the partnership. It also gives the members a source of ownership, as they get to manage, control and get a split of the proceeds from the business. Nevertheless, general partnership is very flexible. One can get to live the partnership at one’s own free will, and get the share of the partnership property. The disadvantage of the general partnership is goes to the financiers of this business who turn out to be the parents. The partnership may not necessarily have a time limit for the partnership, but the partners may live at their own free will, which may not be the anticipation of the financiers. In addition, the dissolution of the partnership can lead to arguments and disagreements, especially when one partner may have been dishonest. Also, it’s a disadvantage because every associate is permitted to the same share of profits according to the amount invested on the partnership. The advantages and disadvantages of limited partnership The advantages of limited partnership are that the business in question is able to acquire funds through the bank. The business entity might be new, but it can still acquire funds from the bank as long as the limited partners are willing to personally guarantee for the loan. It minimizes the work of the limited partners, as they don’t have an in day activity to play in the governing and running of the business partnership. The disadvantages of a limited partnership are that debt liability beyond the investment is carried single handedly by the general partners. Despite the limited partners’ contributions on the setting up of a business through partnership, they are not entitled the managing or controlling of the company. In addition, their profits are limited to a certain percentage of profit. Nonetheless, a limited partnership has complex procedures while starting up the partnership and also when dissolving it. It requires a certificate to be filed with the secretary of the respective state when starting up the company (certificate of limited partnership) as well as when closing the company (certificate of cancelation) (Cheeseman, 262 &261). Such procedures are considered to be bureaucratic for any partnership and sometimes take time to be certified. In conclusion both types of partnership, are a fine idea while starting a business, but they can both be terminated at a partners own free will and many a times leads to disputes thus the downfall of the business. This is most likely in partnerships that do not have a stipulated period of time. (B) Duties of directors and their importance in governing of a company The directors of the company who are also its managers have a duty to direct the company’s dealings in the best interest of the stakeholders. They are have an obligation of keeping the company’s books and accounts and are also accountable to the stockholders and sponsors for the company’s actions and consequences. This reduces the stakeholders and investors worry on the running of the business and incase of any misunderstanding that needs clarification, the directors can always retrieve their books of the company for more information. They are also entitled to carrying the businesses activities in good faith. If the directors cannot be trusted, this might then mean that some of the investors will not hesitate to pull out their funds from the company and thus its closure. Any problem encountered in when carrying on with the company’s activities should be addressed by the board and if need be by the shareholders of the company. This enhances that current problems are solved and not carried on in the future as it will deter with the development of the company. The directors also have a duty of laying out the company’s goals and mission, and later take the responsibility of appraising and scrutinizing the expansion and progress of the company. In case of any loopholes, the directors have the responsibility of propagating lasting answers for the business to carry on as required. They also have to keep reviewing and revising the governing laws of the company. This ensures that the laws are suitable to everyone and they keep up with the changing times. In addition, the directors of the company have the responsibility of ensuring that each and every employee is working hard towards achieving the goal of the company. It is the duty of the director also to ensure that the employees working environment is suitable: their salaries and working materials. Improper care of the employees’ results to low input thus low output, and in the end the director is not capable to meet the prospects of the stake-holders or the investors. Directors have a responsibility that money–laundering is minimal; otherwise this can lead to the bankruptcy of the company. This is why cross monitoring of the company is not just necessary but sufficient. To attain this, directors have the responsibility to ensure that the company’s accountants and auditors are efficient and effective. WORK CITED Cheeseman, Henry. The Legal Environment of Business and Online Commerce, Prentice Hall, 6th ed. 2010. Print. Partnership “West's Encyclopedia of American Law”. 2005. 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