Question

Discuss what limited partnerships are. How did Enron use them to conceal its debt?

At least 300 words

DO NOT COPY AND PASTE, use your own words.

Answer 1

Limited partnerships are the relatively new form of business which combines the advantages of both partnership and corporate form of business. In a limited partnership partners have limited liability like the stockholders of a corporation and there are comparatively less legal formalities like a partnership. Like a company, a limited liability partnership has separate legal existence and perpetual succession. It is difficult to transfer ownership interest in a partnership but in a limited liability partnership partners can freely transfer their ownership interest. Partners of a limited liability firm are not liable personally for the debt of the firm and there liability is limited to the extent of their partnership interest. Another advantage of limited partnership is this form of business is exempt from many taxes like dividend distribution tax and minimum alternative tax which are faced by a corporation. There is no compulsory audit requirement in a limited liability business. So limited partnerships are a combination of good features of both partnership and company. There is flexibility like a partnership and advantages of corporations. This format of business is quite useful for small and medium form of business which cannot afford high formation cost of company. Enron engaged in limited partnerships to hide its losses and to inflate its gains. There are many limited partnerships were created through which Enron invested money in its related companies and thereby inflated stock process by hiding the actual picture. Many top level executives of the company formed limited partnership and somehow deal with the company or take contracts which the company is not able to accept. There were many gross self dealing in Enron case and executives of the company were tempted by the high profit and prestige and forgot their responsibility towards interested stakeholders. This way Enron used limited partnerships for its advantage.