Types of Business Partnerships Quiz

Partnership Types

• Silent Partner (also known as Sleeping Partner): an individual or entity that invests capital in a business partnership but does not actively participate in its day-to-day operations or management.

• Estoppel Partner (also known as Holding Out Partner): an individual who is not actually a business partner but is considered as one due to their actions as representatives (proxy/appointed only).

Partnership Formation

• A partnership can be formed by:
  • Two experienced individuals
  • An individual with no experience in business and an individual in business as a single proprietorship
  • Two individuals in business as single proprietorship
  • An existing single proprietorship joining an existing partnership
  • Two existing partnerships in business forming a new partnership

4 Stages of Partnership

• Formation: partners agree to form a partnership and create a written agreement outlining the terms and conditions of the partnership, which may need to be registered with the appropriate government authority.
• Operation: partners work together to manage and operate the partnership, carrying out activities outlined in the partnership agreement, and share profits and losses according to agreed-upon terms.
• Dissolution: partnership can be dissolved by:
  • Expiration of partnership term or mutual agreement among partners
  • Partners winding up the partnership's affairs
  • Settling debts
  • Liquidating assets
• Partnership Reviewer Partnership: an agreement between two or more (not more than 5) people who determine the share of ownership and operation of a business, contributing money, property, or industry with a common fund, with the intention to divide the profits and losses between or among them.

Corporation

• Owned by 5 or more persons, corporations are legal entities that are separate from their owner, called "Shareholders".
• The capital is divided into shares of stocks.
• Their personal assets are protected from the corporation's debts and liabilities.
• They can raise capital by issuing shares of stock and have perpetual existence.

Partnership Documents

• Articles of Partnership: a legal document for partnership's agreements, outlining the terms and conditions between the partners, which is registered under the Security and Exchange Commission (SEC).
• Bylaws of Partnership: a set of rules and regulations that govern the internal operations and management of an organization, providing guidance on various aspects of the organization's structure and operations.

Partnership Agreement Contents

• Partnership name
• Firm name and place of business
• Character of the business
• Partnership Capital and investment of each partner
• Accounting method to be adopted
• Sharing of profit and losses in partnership
• Extent of drawings
• Continuation of the business in case of death, retirement of a partner, or admission of a new partner

Kinds of Partners

• According to Liability for Partnership Obligations:
  • General Partners: liable up to the extent of their personal property.
  • Limited Partners: liability is only to the extent of their investment in the partnership.
• According to Nature of Contributors to the Partnership Capital:
  • Capitalist Partner: contributes money or property to the partnership.
  • Industrial Partner: contributes intelligence and skills, entitled to the profits of the business but not entitled to the loss.