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Partnership Form of Organization

Financial Accounting
Course Code
Liang Chen

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Partnership Form of Organization
Partnerships ± A partnership is two or more people who do business with the intention of
making a profit. Professional partnerships can vary in size from two partners to thousands
¾ Characteristics of Partnerships
Association of Individuals: a partnership is an accounting entity for financial
reporting purposes. Thus, the personal assets, liabilities, and transactions of
the partners are excluded from the accounting records of the partnership, just
as they are in a proprietorship
Division of Income: the partners specify how the partnership net income
(loss) will be divided when they form the partnership. The net income of a
partnership is not taxed as a separate entity, ratKHUHDFKSDUWQHU¶VVKDUHLV
personally taxable
Mutual Agency: each partner acts for the partnership when doing partnership
business, thus binding one another
Co-ownership of Property: partnership assets are owned jointly by the
partners; each partner has a claim on total assets equal to the balance in their
respective capital account. Net income is also co-owned; all net income or
loss is shared equally unless it is specified
Limited Life: any change in ownership dissolves the partnership; partnership
dissolution occurs whenever a partner withdraws from the company for any
Unlimited Liability: each partner is jointly and severally liable for all
partnership liabilities
¾ Organizations With Partnership Characteristics
There are special forms of partnerships like limited partnerships and limited liability
Limited Partnerships: one or more of the partners have unlimited liability.
This type of partner is called a general partner; the other is called a limited
partner with limited liability. The limited partner also receives less
compensation and has less influence
Limited Liability Partnerships: this is designed to protect innocent partners
from negligence claims resulting from the acts of another partner
Multidisciplinary Practices: are professional services organizations in which
lawyers become partners with accountants or other professionals. There is
much controversy because of fear of conflict of interest and confidentiality in
multidisciplinary practices
¾ Advantages and Disadvantages of Partnerships
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