Question

Heidi Birmingham and James T. Roberts have decided to create a business. They have financing available and have a well-developed business plan. However, they have not yet decided which type of legal business structure would be best for them.

Required

Write a memo to these two individuals outlining the types of situations in which the partnership form of legal structure would be the best choice

Answer 1

The situations in which partnership form of legal structure would be the best choice are outlined as follows:

1) The profits and losses are to be distributed in the proportion of capital/investment made by the onwers at the time of incorporating.

2) The firm or in any other ratio in which the owners want the profit/loss to be shared has been mutually agreed.

3) The owners want the firm to have a legal status but want to avoid the legal complexities associated with the formation and operation of company/corporate organization.

4)In other words, the eassy with which partnership firm can be opened/operated can be the motivating factor for considering a partnership form of business. This is particularly true in case of start-up companies.

5) If owners wish to avoid the costs assoiciated with incorporating a company.

6) Cost of forming a partnership is comparatively less as compared to a corporation.

7) Irrespective of the situations in which a partnership business can be formed or should be performed, it is important to consider the fact that a partnership business has many disadvantages.

8) The most important of which is unlimited liability of the partners.

9) Therefore, it is advisable to open a limited liability partnership (LLP) rather than forming an unregistering partnership.