Business Entities Of Corporations And Partnerships Essay

946 Words4 Pages
Introduction The business entities of corporations and partnerships share many similarities, however key difference exist, mainly in terms of formation, taxes and liability. This paper is focused primarily on the issue of liability and will address the effects of damages, disclosure requirements and personal liability for both corporations and partnerships. Additionally will be examined as a partnership rather than a corporation to further illustrate these differences.
Damages Estimate
According to the FASB, guidance on contingent liabilities applies to all entities, therefore corporations and partnerships should approach damage estimates similarly. FASB specifies that contingencies be measured at fair value and recognized based on the likelihood that they will occur. Specifically, if the contingency loss is probable, it shall be recognized as a liability on the balance sheet. Conversely, if the contingency cannot be reasonably estimated, than only a disclosure describing the nature of contingency is required (ASC 450-20-50-5). For example a probable contingency loss of $2 million would be reflected in the financial statements of both corporations and partnerships similarly. However, the effects of such a loss would impact the entities quite differently. As partnerships are subject to unlimited liability, damages of $2 million could cause a partnership to become insolvent. Case in point, the $2 million loss contingency is greater than the partnerships total
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