Assignment:
1: After reading the chapter, I learned that there are many advantages of doing business in partnership.
Advantages of partnership include that:
The business is easy to establish and start-up costs will be low compare to do business by your own.
You will have more capital available to invest in the business.
Borrowing capacity will be greater.
Business will be diverse.
High-calibre employees can be made partners
There is opportunity for income splitting, an advantage of particular importance due to resultant tax savings.
Partners' business affairs are private.
There is limited external regulation.
It's easy to change your legal structure later if circumstances change.
At the end, two heads (or more) are always better than one head.
2: A limited partnership has two types of partners, general and limited. General partners manage the operations and have unlimited liability. Limited partners invest capital but do not participate in the management of the business limiting their liability to a maximum of their capital investment. Limited Partnerships must produce a certificate of limited partnership, signed and executed to make the limited partnership legally binding.
The main tax advantage of the limited partnerships is that the business pays no tax and the profits and losses of the business flow directly to the limited partners which can offset other income they have established elsewhere. Understanding that the losses will occur in the early years, as the business becomes profitable in the later year, the limited partners will be taxed at a lower rate on their longterm capital gains. This is a very strategic opportunity, typically hedge funds and private equity funds.
3: Great post Melissa! In all those different entrepreneurship, limited partnerships are generally not the best choice for a new business, unless you expect to have many passive investors because of all the required filings and administrative complexities. If you have two or more partners who want to be actively involved, a general partnership would be much easier to form. However, one of the major advantages of a partnership is the tax treatment it enjoys. A partnership doesn't pay tax on its income but "passes through" any profits or losses to the individual partners. So in general, in the company the general partners own and operate the business and assume liability for the partnership, while the limited partners serve as investors only; they have no control over the company and are not subject to the same liabilities as the general partners.
4: A corporation is a fictitious legal entity, owned by the shareholders who elect a board of directors who vote on fundamental changes in the corporation.T here are three distinct characteristics of a corporation:
1. free transferability of shares by stakeholders;
2. perpetual existence (unless a duration is stated in the articles of incorporation); and
3. centralized management that is composed of a board of directors and officers of the corporation.
The owners (shareholders) have limited liability much like limited partners in a partnership where they are only liable to the extent of their capital contributions.
There are numerous types of corporations e.g., private, public, closely held, professional, government-owned, domestic, foreign and alien, etc.