Partnerships and Limited Liability Partnerships

Question 1

What is a partnership?

Answer 1

A partnership is a business with between 2 and 20 owners, known as partners. They are privately owned and are often used as a business structure for solicitors, accountants and architects.

Question 2

Identify 4 advantages of a partnership

Answer 2

• More capital is available to the business due to the potential number of owners.
• There will be greater expertise which will also allow partners to specialise in one area of the business.
• More ideas can be generated when developing and operating the business.
• The workload, decision making and risk can be shared between the partners.

Question 3

Identify 4 disadvantages of a partnership

Answer 3

• Profits have to be shared
• General partners suffer from unlimited liability
• Disagreements can occur between partners as to how the business should be run and the direction the business is taking.
• Decisions made by one partner are binding on other partners.

Question 4

What is a deed of partnership?

Answer 4

A deed of partnership is an written agreement drawn up by partners

Question 5

What is included in the deed of partnership?

Answer 5

• the name of the business.
• the name of the partners.
• the amount of capital each partner is contributing.
• how profits and losses are to be shared.

Question 6

Identify the two types of partner

Answer 6

1. A General Partner
2. A Limited Liability Partner

Question 7

Features of a limited partner

Answer 7

• Limited Partners don’t suffer from unlimited liability.
• If a partnership wants one or more partners to become limited partners they must register with the registrar of companies.
• A limited partner is one who contributes capital in the form of money or property to the partnership but who is not responsible for any of the debts of the partnership over the amount they have invested.
• they cant take part in the management of the partnership or make contracts on behalf of the partnership

Question 8

identify 5 ways in which partners can generate money form a partnership?

Answer 8

• interest on equity
• interest on drawings
• partnership salary
• loan from a partner
• interest on loan to a partner

Question 9

what is a partnership salary?

Answer 9

One partner may have a heavier workload than the others or may work more unsociable hours e.g a vet who carries out more of the on call work during the nights or the weekends. In such situations, it is common and more convenient for a partner to be paid a salary rather than adjust the profit sharing ratio

Question 10

loan from a partner

Answer 10

instead of a partner investing more money into the partnership they ma instead decide to provide a loan to the business.

Question 11

interest on loan to a partner

Answer 11

in return for the loan the partner who has lent the money will receive interest on the loan

Question 12

interest on equity

Answer 12

partnership agreements may state that partners are to receive interest on the equity that they have invested into the business

Question 13

interest on drawings

Answer 13

Some partnership agreements will state that interest is to be charged on drawings, done as a deterrent for partners taking too much cash or stock out of the business for their own personal use.