Discuss the Advantages and Disadvantages of Partnerships
Accounting for partnerships
Accounting for partnerships – Discuss the advantages and disadvantages of partnerships. Identify and discuss the Financial Accounting Standards (FAS) that govern accounting for partnerships including both creation, operation, and liquidation. What are the tax consequences of partnerships.
The legal definition of a partnership is pretty simple. It is an association of two or more persons who have not incorporated; and carry on a business for profit as co-owners. A partnership exists if these conditions are met, even though the people involved may not know it or even intend that the business be a partnership--and even if they don't actually make a profit. Partnerships can be flexible; the partners have the ability to make virtually any arrangements defining their relationship to each other that they desire. The partners can agree to split the ownership and profits in flexible ways, and losses can be allocated on a different basis from profits. Because you can sell equity interests (ownership) in a partnership, it's easier to raise capital in a partnership than in a sole proprietorship. (However, since investors are more familiar with the corporate form, a corporation may have a greater ability to raise capital than a partnership.) With careful advance planning, a partnership can avoid some of the problems inherent in a proprietorship when an owner dies, retires, or becomes disabled. When you operate as a partnership, you have someone to share the workload. When operating as a partnership you do not have to treat the business as a separate entity for tax purposes --- each partner can simply file his own taxes for his share of the business.
The major downside of organizing as a partnership is that both partners still have personal responsibility for debts and liabilities, as is the case with a sole proprietorship. Also, you cannot make certain important business decisions without the agreement of the partner. Generally, the
Accounting for partnerships – Discuss the advantages and disadvantages of partnerships. Identify and discuss the Financial Accounting Standards (FAS) that govern accounting for partnerships including both creation, operation, and liquidation. What are the tax consequences of partnerships.
The legal definition of a partnership is pretty simple. It is an association of two or more persons who have not incorporated; and carry on a business for profit as co-owners. A partnership exists if these conditions are met, even though the people involved may not know it or even intend that the business be a partnership--and even if they don't actually make a profit. Partnerships can be flexible; the partners have the ability to make virtually any arrangements defining their relationship to each other that they desire. The partners can agree to split the ownership and profits in flexible ways, and losses can be allocated on a different basis from profits. Because you can sell equity interests (ownership) in a partnership, it's easier to raise capital in a partnership than in a sole proprietorship. (However, since investors are more familiar with the corporate form, a corporation may have a greater ability to raise capital than a partnership.) With careful advance planning, a partnership can avoid some of the problems inherent in a proprietorship when an owner dies, retires, or becomes disabled. When you operate as a partnership, you have someone to share the workload. When operating as a partnership you do not have to treat the business as a separate entity for tax purposes --- each partner can simply file his own taxes for his share of the business.
The major downside of organizing as a partnership is that both partners still have personal responsibility for debts and liabilities, as is the case with a sole proprietorship. Also, you cannot make certain important business decisions without the agreement of the partner. Generally, the