CHAPTER 4 1. Is a limited partnership treated as a separate entity for all purposes? If not, give an example of an instance in which a limited partnership is treated as an aggregate of its partners. No, they are not always considered separate entities when dealing with substantive liabilities and duties of the partners, the limited partnership is considered an aggregate of the individual partners. 2. Why is the fiduciary duty between the general partner and limited partners even greater than the fiduciary duty between partners in a general partnership? Because the general partner holds majority of the interest and the limited partners are prohibited for participating in the control of the business. 3. Suppose that Beth …show more content…
9. Suppose that Katherine, Brianna, and Paige have formed a limited partnership to operate a video arcade. Katherine is the general partner. She has contributed $2,000 and her time to get the operation running. Brianna and Paige, the limited partners, have each contributed $3,000. After one year of operation, the arcade has debts of $10,000, and the three partners decide to discontinue their business and the limited partnership. Brianna and Paige want their investment returned to them. Who should Katherine, who is winding up the business, pay first, Brianna and Paige, or the creditors? How much will Brianna and Paige receive? How about Katherine? Katherine is winding up the business, she should pay the creditors first and Brianna and Paige will be compensated for their contribution and partnership interest. Katherine would get the remaining balance if there is any. 10. Suppose a limited partnership has just one general partner, who suddenly dies. Will the partnership dissolve? Could a limited partnership continue if one of three general partners suddenly dies? If yes, under what circumstances? Yes, it is not always necessary for limited partnerships to dissolve if one general partner dies as long as there is one other general partner. If there is provisions of the partnership agreement permit the business of the limited partnership to be carried on by the remaining general partner, and that partner does
| The partners are jointly and severally liable for business debts and obligations. The partners are held personally responsible for the business and may be sued personally for liability. Partners’ personal assets are subject to lawsuit(s) made against the business. Lack of continuity; death of a partner may end the partnership/business if a buy/sell agreement is not in place. Disagreements may be difficult to resolve.
Due to its nature, partnership is generally liable for the acts of the individual partners if committed in the course of the partnership business. However, liabilities of every partner may be regulated by the written agreement signed by partners. If no written agreement is signed by partners, liabilities of the partnership are regulated by the Partnership Act. If one of the partners retires, he or she may not be liable for the future debts of partnership if an official notice of the change is sent to creditors and the public. However, there were no official notice sent by the partners in the case; therefore, Toby may be liable for the debts of partnership. Due to the death of the third partner, partnership may be dissolved. In order to pay off the debts, assets should be sold and partners are free to continue the same kind of business after the dissolution of the
General Partnerships are not without their disadvantages. Without being an incorporated company the owners are still subject to issues such as liability, control, and location issues.
When it comes to partnerships Alex, Bill, Carl, and Devon will have two options- a general partnership or a limited partnership. Partnerships are beginning to be a business form of the past. Once upon a time, partnerships were “the default form of business and provided the benefit of pass-through taxation, but lacked the important feature of limited liability” (Chrisman, 2010, p. 465). In a general partnership, each partner associated with the entity will be held liable for their own business decisions as well as
Liability All liabilities are the responsibility of each partner. In the event of litigation, any creditors can go after the personal assets of each partner to recover any debt owed. But since liability is spread out between the owners, one may feel less risk is being taken. 2. Income Taxes General partnership may also benefit from pass-through taxation, meaning the partners are taxed like sole proprietors. Business income is reported on the personal tax filing while business losses can be deducted to reduce personal tax liability. The partnership itself is not subject to federal income tax. However the partnership needs to file an information return utilizing the IRS Form 1065. 3. Longevity or continuity of the organization Once the partnership agreement is fulfilled, the general partnership may dissolve. A buy/sell agreement may be included in the articles of the partnership to allow the
Control- The general partner(s) maintain control of the business. They have equal authority unless otherwise specified in a agreement. The limited partners do not maintain any control in the partnership.
The General Partner has exclusive management and control over all aspects of the Fund 's business. The Limited Partners have no right to participate in the Fund 's management except for certain limited voting rights as specifically set forth in the Fund 's LP Agreement, which include the election of a successor General Partner and the dissolution of the Fund. Matters requiring limited partner approval generally require the vote or consent of a majority-in-interest of the Limited Partners.
A limited liability company protects each partner from personal liability for certain obligations of the company. An important difference from other partnerships is that each partner is liable for the debts and obligations of the partners. With limited liability Company, each state has its own laws governing partners for these vessels. Some states allow only certain professions, such as lawyers and accountants to form LLP. Some states only provide protection from liability for negligence claims, leaving personally responsible for other types of requests partner. For tax purposes, profits are divided equally between the partners and the partnership is not taxed separately.
Liability- The general partner would be liable for all unlimited responsibility on all tasks and debt, while the limited partner will not loss more than their investment.
This protects the limited partners from the full liability that is shared by the general partners. Income Taxes – The limited partner’s profits are considered personal income and taxed as such. All profits from the limited partnership are considered personal income and taxed at their personal tax rates. Longevity / Continuity – The continuity of the business is not affected by the death or disassociation of a limited partner. An advantage for a limited partner is that the limited partner’s investment takes priority in the general partnership dissolves due to a death or disassociation of one of the general partners.
Profit retention – In a partnership profit and losses are shared unless partners agree to
It continued with the winding up of business partnerships, such as performance of existing contracts, payment of debts of firms and collection of receivables. The assets of the partnership is liquidated and distributed, or if the partnership is to continue, then the procedure shows the changes in the membership of the firm is run. Dissolution ends with the termination of the legal existence of the partnership, when all procedures are completed.
d. Corporate investors are exposed to unlimited liability. e. Corporations generally face relatively few regulations. Which of the following statements is CORRECT? a. In a regular partnership, liability for other partners ' misdeeds is limited to the amount of a particular partner 's investment in the business. b. Partnerships have more difficulty attracting large amounts of capital than corporations because of such factors as unlimited liability, the need to reorganize when a partner dies, and the illiquidity (difficulty buying and selling) of partnership interests. c. A slow-growth company, with little need for new capital, would be more likely to organize as a corporation than would a faster growing company. d. In a limited partnership, the limited partners have voting control, while the general partner has operating control over the business. Also, the limited partners are individually responsible, on a pro rata basis, for the firm 's debts in the event of bankruptcy. e. A major disadvantage of all partnerships relative to all corporations is the fact that federal income taxes must be paid by the partners rather than by the firm itself. Which of the following statements is CORRECT? a. The proper goal of the financial manager should be to attempt to maximize the firm 's expected cash flows, because this will add the most to the wealth of the individual shareholders. b. The financial manager should seek that combination of
* The ownership of the partners is dissolved and they become mere employees who are responsible to the shareholders and Board of Directors
Limited partnership: Owners are distinguished as either general or limited partners. Limited partners are only liable about their contribution to the partnership involving funds, equipment and other property.