2-Part discussion: Part 1: Jerry is confused about the partnership characteristi

Question

2-Part discussion:

Part 1:
Jerry is confused about the partnership characteristics of (a) mutual agency and (b) unlimited liability. Explain these two characteristics for Jerry.

Part 2:
Brent Houghton and Dick Kreibach are considering a business venture. They ask you, as business consultant, to explain the advantages and disadvantages of the partnership vs. corporation form of organization. Please provide them with your advice. 2-Part discussion:

Part 1:
Jerry is confused about the partnership characteristics of (a) mutual agency and (b) unlimited liability. Explain these two characteristics for Jerry.

Part 2:
Brent Houghton and Dick Kreibach are considering a business venture. They ask you, as business consultant, to explain the advantages and disadvantages of the partnership vs. corporation form of organization. Please provide them with your advice.

Explanation / Answer

Hi,

Please find the answers as follows:

Part 1:

Mutual Agency =

The business of partnership may be carried on by all the partners or by any of them acting for all. Thus every partner is an agent of other partners and at the same time of the firm.

Unlimited Liability=

The unlimited liability of partners is the legal relationship amonggeneral partners of a partnership that makes each general partner responsible for paying all the debts of the partnership if the other partners are unable to pay their shares.

Part 2:

Advantages of a Partnership Versus a Corporation are as follows:

a) A partnership is simple and inexpensive to create. A partnership can be created with the use of a simple partnership deed.

b) A partnership can be dissolved as per the terms of agreement between the partners and without much complexities. On the contrary, a corporation may be wound up after following prescribed stautory procedures.

c) Profits distributed to partners are taxed as their individual incomes which may help in saving tax.

Disadvantages of a Partnership Versus a Corporation are as follows:

a) Partners assume complete responsibility for the personal debts of the firm whereas in the case of a corporations, liabilities of the members are limited to the capital contribued by them.

b) A partnership firm may not enjoy the status of a legal entity in the eyes of law and hence it cannot sue any third party. However, it can be sued by third parties.

Thanks.

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