Question

In: Economics

in the usa a.Then explain to him what is a Limited Liability Partnership? What responsibilities and...

in the usa

a.Then explain to him what is a Limited Liability Partnership? What responsibilities and liabilities do the partners have for themselves individually, to the firm/to each other in the firm and to the public?

d. Explain to Jim if he needs additional capital to begin his new company what are some ways he could finance his new company?

Solutions

Expert Solution

Part (a)

In limited liability partnerships, the partners have less than full liability for the actions of other partners, but full liability for their own actions. One reason for the development of the LLP was that a growing number of national professional firms needed a partnership-like organization that could operate across state lines but not impose vicarious liability on its owners.

The initial motivation for the inception of the LLP was a strong desire to limit the personal liability exposure of professionals (especially accountants and lawyers) who have traditionally done business as partnerships. LLPs are governed mainly by the statutes of the state in which the entity is formed, more specifically by special provisions within the Uniform Partnership Act as adopted in each state. Most states have amended their partnership acts by adding special provisions.

Partial shield statues are designed to protect individual partners from incurring personal liability for partnership debts and obligations arising specifically from the negligence and wrongdoing of other partners. Full shield statues states that obligations of the partnership belong solely to the partnership and that partners are not personally liable for any partnership obligations.

Each partner is protected from personal liability for partnership debts and obligations incurred due to the wrongdoing of other partners (partial shield states).  Each partner is protected from personal liability for partnership debts and obligations, unless the partnership obligations was incurred due to his or her own wrongdoing (full shield states).

Partners are personally responsible for partnership obligations incurred due to their own wrongdoing. Like any general partnership, the partnership may discontinue on the death or disability of one of the partners. A partner’s interest in a limited liability partnership is not freely transferable.

Limited liability partnerships are not subject to federal income taxation. Income is available to the partners. Unlike sole proprietorships and general partnerships, limited liability partnerships have the ability to attract investors who accept no personal liability.

Part (b)

Sources of finance for LLPs

  • Factoring provides you with finance against invoices that your customers have not yet paid. Typically you can receive up to 85% of the value of the invoice immediately and the balance (less costs) when the customer pays.
  • Hire purchase is used to finance the purchase of equipment. Your business buys the equipment but payments of capital and interest are spread over an agreed period.
  • Leasing is a method of financing equipment you do not need to own. It is often used for vehicle finance. The equipment is rented rather than owned and the rental payments spread over several years. There can also be the option to fix maintenance costs as part of the agreement (contract hire)
  • Crowdfunding works by securing multiple small investments to your business rather than one or two large investments. There are various models of crowdfunding, ranging from sending investors a future product to providing a future return on investment.

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