Types Of Partnership For A Partnership Formation Essay

Types Of Partnership For A Partnership Formation Essay

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Before a partnership formation is imminent, the business needs to decide on which type of partnership to form. There are three types of partnerships: (1) general partnerships, (2) limited partnerships, and (3) joint ventures. All three partnerships contain two or more owners, but all partners assume equal division of ownership, liabilities, and profits in a general partnership. Limited partnerships offer limited liability protection based on each partner’s contribution percentage. Joint ventures are classified as general partnerships with limited existence periods. Once a type of partnership has been determined, the business fulfills a series of requirements before the partnership can be successfully formed. The first step is to register the with the state by completing paperwork with the Secretary of State. Business registration normally requires the partners to choose a business name as well as procure relevant licenses and permits. If the partnership decides to hire employees, specific regulations are available to assist the business in handing processes on federal and state levels. In addition, any new businesses are required to register with the Internal Revenue Service (IRS) and state revenue agencies in regards to tax reporting as well as procuring a tax identification number. Once the obligations of forming the partnership are met, the partners are able to draft a partnership agreement (Partnership 2016) (Publication 541-Partnerships 2016).
The partnership agreement outlines five critical element that partners must agree upon before the partnership begins: (1) decision-making, (2) capital contribution, (3) salaries/distributions, (4) death/disability, and (5) dissolution. Deciding how important decisions are ma...


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...g goodwill based on each partner’s profit/loss ratios. However, the capital balance belonging to the withdrawing partner is adjusted to the amount withdrawn. The partnership equity section is broken down by the number of partners in the partnership. On the Balance Sheet, each partner’s equity will be listed into two categories: (1) Capital Account and (2) Current Account. The Capital Account represents the investments put into the business by a partner and the Current Account includes the profits and losses allocated to each partner based on the predetermined ratios. However, any partner withdrawals need to be deducted from the Current Account before final figures are computed. The ending Capital Account from the Statement of Partner’s Capital is added to the Current Account to calculate the overall balance in Owner’s Equity (Merritt 2016) (Rogers 2016) (Rojas 2016).

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