Partnership Theories and Characteristics

Partnership Theories

• A partnership is a contract where two or more people agree to contribute money, property, or labor to a common fund, intending to share profits. A partnership can also be formed for professional services.
• A partnership has a separate legal identity from its individual partners.
• A partnership's existence can be terminated immediately.
• A corporation, unlike a partnership, has a set term (often 50 years) that can be renewed.

Characteristics of a Partnership

• Mutual Contribution: Partners contribute money, property, or labor (skills/knowledge).
• Division of Profits/Losses: Profits and losses are shared among partners based on agreement.
• Co-ownership of Contributed Assets: Partners jointly own assets contributed to the partnership.
• Mutual Agency: Partners act as agents of the partnership, binding it in transactions.
• Limited Life: Partnerships can be dissolved at any time by mutual agreement.
• Unlimited Liability: Partners are personally liable for partnership debts up to their personal assets.
• Income Taxes: Partnerships are generally subject to income tax, with exceptions for professional partnerships.

Partnership Advantages

• Greater Financial Capacity: Combines the financial resources of multiple partners.
• Combined Expertise: Leverages the skills and knowledge of the partners.
• Ease of Formation: Easier and less costly to form than a corporation.
• Flexibility: Offers flexibility in decision-making and operation.

Partnership Disadvantages

• Instability: Easy dissolution, more unstable than a corporation.
• Unlimited Liability: Partners are personally liable for partnership debts.
• Limited Capital Raising: More challenging to raise significant capital compared to a corporation.

Distinguishing Partnerships from Corporations

• Formation: Partnerships are formed by agreement, while corporations require legal approval.
• Number of Members: Partnerships can have two or more members, while corporations can also exist with a single member (one-person corporation).
• Juridical Personality: Partnerships gain juridical personality only upon approval by the SEC. Corporations have juridical personality upon receiving a certificate of incorporation.
• Management: Partnerships typically operate with direct partner involvement; corporations have a board of directors.
• Liability: Partnership liabilities are unlimited and shared among all partners. Corporations limit liability to the shareholders' investment amount.
• Succession: Partnerships don't continue in the event of a partner's death or withdrawal. Corporations usually have a perpetual succession.

Types of Partnerships

• Universal Partnership of All Present Property: Partners contribute all existing property and future assets.
• Universal Partnership of Profits: Partners contribute future profits.
• Particular Partnership: Partnership formed for a specific purpose or project.
• General Partnership: All partners have unlimited liability.
• Limited Partnership: Some partners have limited liability.
• Professional Partnerships: Formed for professional practice with varying tax treatments.

Partnership Classifications

• Object: Universal partnerships, particular partnerships.
• Duration: Fixed term or at will.
• Liability: General or limited partnerships.
• Purpose: Trading or commercial or professional partnerships.
• Legality: De jure (legal) or de facto (illegal or not registered).
• Partners: General, limited, capitalist, industrial, managing, dormant, silent, secret, or nominal partners.