MGT Notes

Reference: Corporate Finance – Ross et al, 12e, Pg 4

A Partnership is a form of business that comprises two or more people. General partnerships are ones in which all partners contribute work and capital & share profits and losses. A partnership agreement is needed and can be oral or written. All partners are liable for debts. Limited partnerships are ones in which there are one or more general partners and the remaining partners do not manage the business. General partners are liable for all debts and if one general partner is unable to fulfill debt obligations, other general partners need to make up for the shortfall. The liability of other partners is limited to the amount of cash that was contributed.

Partnerships are inexpensive and easy to form. Business licenses and filing fees may be needed depending on the type of business and its location. A partnership ends when the general partner dies or withdraws from the business. This is not applicable for limited partners. Partnerships are difficult to transfer without dissolving. Limited partners may sell their interest in the business. It’s difficult to raise large amounts of cash in this type of firm and it is taxed according to the individual income taxes of the partners.