Учебно-методический комплекс дисциплины «иностранный язык (профессиональный)»
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Activities: 1. Speak about background on Sole Proprietorship 2. Give distinguishing characteristic of Sole Proprietorship. 3. Name all advantages of Sole Proprietorship. 4. Name all disadvantages of Sole Proprietorship. 5. If your friend was making a success of a sole trader business, and was considering taking on a partner, what impartial advice would you give that friend? Theme III. Forms of Business Organizations (Partnerships in the U.S.) Lecture 3. Learning Objectives An understanding of the material in this lecture should enable the student to
4. Distinguish Family Limited Partnership and Professional partnership. 5. Describe the major advantages and disadvantages of partnership. Partnerships in the U.S. There are approximately 1,350,000 partnerships currently operating in the United States. The vast majority of all partnerships are commercial partnerships (companies that manufacture or sell products), as contrasted with professional partnerships such as those in law and medicine. Though most of the insurance-related problems are similar, the professional partnership does have a few peculiar problems, which will be discussed later. Background on Partnerships When two or more people agree to combine their resources and skills for mutual profit, they have formed a partnership. It is just about as simple as that. The Uniform Partnership Act defines a partnership as "an association of two or more persons to carry on as co-owners of a business for profit." The definition given by Chancellor Kent in Corpus Juris says: "A contract of two or more competent persons, to place their money, effects, labor and skill, or some or all of them, in lawful commerce or business, and to divide the profit and bear the loss, in certain proportions." A partnership, then, is a voluntary association of two or more persons, each contributing money, property, skills, labor, or goodwill as the capital of the new firm. The partners must agree on a division of ownership and profits based on the relative value of each partner’s contributions. Types of Partnerships There are two basic types of partnerships: general partnerships and limited partnerships. • General Partnership—A general partnership is the usual type where each partner is fully active in the firm with a voice in its management. Each is an agent of the other partner (or partners) with full authority to act for the firm within the scope of its business activities. Each is fully liable for the debts of the business, and each shares in the profits. • Limited Partnership—Every limited partnership has at least one limited partner and one general partner. The limited partner is not legally liable for all the financial obligations of the firm. Instead, this partner’s liability is limited to the amount of his or her investment in the venture. A limited partner has no voice in management, no involvement in the day-to-day running of the business. In essence, the limited partner is largely an investor in the firm. A general partner is one who has unlimited liability and is active in managing the partnership. Legal Facts about General Partnerships The following are additional facts concerning general partnerships: Oral or Written—A partnership is created by an oral or written contract between the partners. This agreement indicates the basis on which the partners agree to operate. Although oral contracts may be upheld in court, prudent business practice calls for the agreement to be placed in writing in the form of articles of partnership for the full protection of each partner. Articles of partnership usually include the following items of special interest for our purposes: – Names of the partners – Name of the partnership – Nature of the business to be conducted – Capital and property of the firm – Capital contribution of each partner – Share of each partner in the profits and losses – Provisions for settling differences – Drawing account arrangements (technically, partners do not receive a salary) --Duration of the partnership and provisions for dissolution and closure of the firm under circumstances not provided for elsewhere How can knowledge about such a topic as articles of partnership help you in establishing relationships with partnerships? Here are a few ways: Create Confidence—One of your hardest but most important jobs in selling insurance and other financial products is helping prospects gain confidence in you. One way to do this is to ask pertinent questions that also exhibit your knowledge. These could be asked in the preapproach, approach or fact-finding. Here, for example, are a few questions to ask in a partnership situation: Do you have articles of partnership? Do they define the circumstances where your partnership will be dissolved? Do they speak specifically about what happens at death or disability? What do they say on these points? Did you consult your attorney in drawing up the articles of partnership? Do you have any other written agreements that address these contingencies? Get Facts—During the fact-finding process, ask for a copy of the articles of partnership. They can provide helpful facts and insights. For example, you will probably discover the age of the partnership, the relative "values" of capital contributed to the firm by each partner, and the shares of profit to be taken from the firm. It also lets you know which partner, if any, has more say (or a larger stake) than the others. Changes—you can get a brief history of the organization and thereby gain a feel for its current status. For example, are there now more partners than initially? Fewer? Has the nature and scope of the business changed since its inception? How? Perhaps other businesses have spun off from this one? Have former partners started their own business? Who are these businesses? Can you get referrals to them? Confidence Test—when you ask to see one or more of a prospect’s business documents, a positive response is generally a sign of confidence and trust in you. The partners have equal rights to possession of the partnership assets, but only for partnership purposes. For example, they cannot assign, sell, or transfer their individual shares of this ownership. Contrast this with a stockowner’s ease of selling his or her stock to another person. When a partner dies or withdraws from the firm, this tenancy in partnership ceases to exist, and ownership of the assets of the firm is vested in (belongs to) remaining partners as liquidating trustees who are generally required (in the absence of an agreement to the contrary) to dissolve the business. The primary exception to the requirement that the partnership be liquidated occurs when the partners have executed a buy-sell agreement. This agreement specifies that the surviving partner(s) must buy the deceased partner’s interest from the heirs and that the heirs must sell this interest. Funding the buy-sell agreement with life insurance adds certainty that the surviving partners will be able to fulfill their promises. Helping partners to assure the survival of their business is one of the important services you can provide your clients. Business continuation options and buy-sell agreements for partnerships are covered in detail later in the course. When a partner dies, the deceased’s partnership interest passes to the decedent’s personal representative. But ownership as such does not pass to the personal representative; that is, the personal representative does not become a partner. By the same token, heirs cannot become partners by way of a dead partner’s will. Partnerships are formed only when living people consent to become partners. The personal representative receives from the surviving partner(s) the deceased’s share of any profits and surplus remaining after liquidation of the business. The personal representative then distributes these funds to the deceased’s heirs. The heirs of the deceased partner are legally entitled to get cash for the decedent’s share of the business. If necessary, they can force the issue through court action. Even if the remaining partners want to continue the business, they may have to sell out just to raise cash to pay off the dead partner’s heirs. With a little forethought (a written agreement and a source of buy-sell funds), this potentially devastating situation can be readily avoided to everyone’s satisfaction. Authority—each partner is a principal and has equal authority with the other partner(s), unless the articles of partnership specifically limit such authority. In partnerships of more than two members, the majority usually will rule. Unanimous consent is required for unusual decisions of major or vital importance. Each partner becomes an agent of the other associates. Unless specifically restricted in the articles of partnership, each partner may transact business on behalf of the firm and bind the other partners so long as the transaction is within the ordinary scope of the firm’s business. However, a partner does not have authority in the following areas which are of special interest for our purposes: a partner cannot assign or sell partnership property, admit another to the firm without the consent of all associates, or sell his or her interest to another without the consent of the partners. Share—Partners share in agreed proportions in the net profits and undistributed capital of the firm and in any losses that may be incurred. In the absence of a formal agreement, the partners are assumed to share equally in any profits or losses. Unlimited Personal Liability—each general partner is subject to unlimited personal liability for the firm’s obligations. As with sole proprietorships, this is a key planning issue. If the firm becomes insolvent for any reason, including death or disability of a general partner, each partner is individually liable for all of the firm’s debts. Consequently, business debts can eat up not only all of the assets of the firm, but every cent of the personal estates of all partners. However, partners are entitled to have business assets applied in satisfaction of business debts insofar as such assets are adequate. This, in itself, offers a very good reason for insuring the lives of the owners, with the partnership being the applicant, premium payer, and beneficiary of what is, in essence, key person life insurance. Any indebtedness not covered by business assets will be made up from the personal estates of the partners. Likewise, the personal insolvency of any partner can jeopardize the entire partnership business. The personal assets of the insolvent partner must be used to satisfy his or her personal creditors. But if such assets are inadequate, the personal creditors can force a liquidation of the partnership interest in order to satisfy their claims! It’s no wonder the law will not allow anyone to become a member of a partnership except by the mutual consent of all other partners! You’re Problem “Business owner, if you had died yesterday, would your family need the money you have invested in this business? Would your partner be able to pay them in cash as soon as your family needs it?” Common law holds that lawsuits may not be brought against the partnership, as such, but rather are to be brought against the partners as individuals. However, under the laws of some states a partnership is considered an entity (a separate being) for specified limited purposes and can sue and be sued. If a partner dies, retires, sells his or her interest, or goes into bankruptcy, the partnership is dissolved immediately. The Uniform Partnership Act defines dissolution as "the change in a relation of the partners caused by any partner ceasing to be associated in the carrying on as distinguished from the winding up of the business." The partnership is not terminated until the surviving partners have folded the business and equitably distributed the net proceeds. Under arrangements that are explained later in the course, the business may be continued under a new structure. But the old firm has been dissolved, and a new one will have taken its place. Taxation—a partnership as such is not subject to federal income tax. A partnership is required to file an information return (Form 1065) that reports gross partnership income, business deductions, and net taxable income. However, a partnership is a pass-through entity, not a separate taxable entity, and thus no federal income tax is imposed on the partnership itself. As part of its reporting responsibilities, the partnership must provide each partner with a copy of Schedule K of the Form 1065. On an individual income tax return, each partner then must include his or her share of the profits—whether or not actually distributed during the taxable year. Partners can also take advantage of partnership losses to offset their other personal income. Advantages and Disadvantages of General Partnerships Following are several advantages and disadvantages of general partnerships. (Limited partnerships have slightly different rules, and will be mentioned shortly.) Advantages of General Partnerships. First, the partners get all the profits. Unlike corporations, there are no stockholders with whom to share the earnings of the business. Second, unlike corporations the partnership itself is free from federal income tax. Also, partnerships are not subject to the accumulated earnings tax, as some C Corporations are. Third, any losses or profits of the partnership pass directly to the partners as personal income for federal income tax purposes. This means that any partnership losses can be used by the partners to offset income from other sources, thereby reducing their individual federal income tax bill. This is unlike a corporation, where corporate losses can be used only to offset the past or future profits of the company. This treatment of partnership losses can be particularly important to partners who have significant income from other sources. Finally, as contrasted with sole proprietorships, partnerships permit a pooling of capital and talent and a sharing of risk. For example, two people may decide to open a wholesale distributorship. They pool their financial resources to lease space and purchase inventory. One partner may have a knack for dealing effectively with people. The other is more detail oriented and excels at the bookkeeping. Disadvantages of Partnerships. First, the death of a partner may automatically end the partnership—with serious consequences to all concerned. These consequences can be avoided if an ownership transfer plan (buy-sell agreement) is implemented and funded. The second major disadvantage lies in the unlimited personal liability of the partners. Business debts can devour all of the business assets. If the debts cannot be satisfied out of these partnership assets, creditors can attack the personal assets of every partner. Limited Partnerships The Uniform Limited Partnership Act defines a limited partnership as "a partnership formed by two or more persons having as members one or more general partners and one or more limited partners. The limited partners as such shall not be bound by the [financial] obligations of the partnership beyond the extent of their investment." To grasp the concept of limited partnership, think of limited partners as investors. This is, in fact, what they are—namely, investment vehicles, as opposed to regular business partnerships. They put their money into the partnership as a financial investment, taking none of the day-to-day responsibilities for managing the business. In addition, their limited liability keeps them from losing more than they invest. |
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