Question

ying and yang are accountants and partners in their accounting firm. ying is concerned anout he lavish spending habits of yang who is constantly buying expensive business equipment and creating large amounts of business debt. ying is also concerned that yang has given some clientss of the firm dodgy gfinancial advice and that the client my suffer financial loss as a result.

1.explain to ying ,with legal reasons,whether he will be liable for the business debts and whether he will be liable to compensate the firm's client should the client sue for compensation for financial loss caused by yang's professional negligence.

2.assume yang has been successfully sued for the partnership's debts. explain, with legan reasons, what type of business structure should ying consider to adoptto aviod a repeat of this expensive financial lesson and which will also him to keep business affairs private. in your answer, identify the formalities that will be required in creating the new business structure。

Answer 1

In ia igeneral ipartnership, ipartners iagree ito iunlimited iliability, imeaning iliabilities iare inot icapped iand ican ibe ipaid ithrough ithe iseizure iof ian iowner's iassets. iFurthermore, iany ipartner imay ibe isued ifor ithe ibusiness's idebts.

Each iis iresponsible ifor itheir ipersonal itax iliabilities—including ipartnership iearnings—on itheir iincome itax ireturns ias itaxes ido inot iflow ithrough ithe igeneral ipartnership

iThis iallows ifor imore iswift iand idecisive imanagement ias icompared ito icorporations, iwhich imust ioften islog ithrough imultiple ilevels iof ibureaucracy iand ired itape, ifurther icomplicating iand islowing idown ithe iimplementation iof inew iideas.

A igeneral ipartnership imust isatisfy ithe ifollowing iconditions:

ü The ipartnership imust iminimally iinclude itwo ipeople.

ü All ipartners imust iagree ito iany iliability ithat itheir ipartnership imay iincur.

ü The ipartnership ishould iideally ibe imemorialized iin ia iformal iwritten ipartnership iagreement, ithough ioral iagreements iare ivalid.

Ø A igeneral ipartnership iis ia ibusiness imade iup iof itwo ior imore ipartners, ieach isharing ithe ibusiness's idebts, iliabilities, iand iassets.

Ø Partners iassume iunlimited iliability, ipotentially isubjecting itheir ipersonal iassets ito iseizure iif ithe ipartnership ibecomes iinsolvent.

Ø Partners ishould icreate ia iwritten ipartnership iagreement.

Ø General ipartnerships iare iless iexpensive ito iform icompared ito ia icorporation.

General iPartnership iFeatures

In ia igeneral ipartnership, ieach ipartner ihas ithe iagency ito iunilaterally ienter iinto ibinding iagreements, icontracts, ior ibusiness ideals, iand iall iother ipartners iare iconsequently iobligated ito iadhere ito ithose iterms. iNot isurprisingly, isuch iactivities imay ilead ito idisagreements; ias ia iresult, imany isuccessful igeneral ipartnerships ibuild iconflict iresolution imechanisms iinto itheir ipartnership iagreements.

iIn iother icases, ithe ipartners idesignate inon-partner iappointees ito imanage ithe ipartnerships, isimilar ito ia icompany's iboard iof idirectors. iIn iany icase, ia ibroad iagreement iis iessential ibecause iwhen iall ipartners ihave iunlimited iliability, ieven iinnocent iplayers ican ibe ifiscally ion ithe ihook iwhen ithe iother ipartners icommit iinappropriate ior iillegal iactions.

Benefits iof iGeneral iPartnership

The icost iof icreating ia igeneral ipartnership iis iless iexpensive ithan isetting iup ia icorporation ior ia ilimited iliability ipartnership ilike ian iLLC. iGeneral ipartnerships ilikewise iinvolve isubstantially iless ipaperwork. iIn ithe iUnited iStates, ifiling ilimited ipartnership ipaperwork iwith ia istate iis igenerally inot irequired, ithough icertain iregistrations iforms, ipermits, iand ilicenses imay ibe inecessary iat ithe ilocal ilevel.

Long-term idebt iis idebt ithat imatures iin imore ithan ione iyear. iLong-term idebt ican ibe iviewed ifrom itwo iperspectives: ifinancial istatement ireporting iby ithe iissuer iand ifinancial iinvesting. On ithe iflip iside, iinvesting iin ilong-term idebt iincludes iputting imoney iinto idebt iinvestments iwith imaturities iof imore ithan ione iyear.

Long-term idebt iis idebt ithat imatures iin imore ithan ione iyear. iEntities ichoose ito iissue ilong-term idebt iwith ivarious iconsiderations, iprimarily ifocusing ion ithe itimeframe ifor irepayment iand iinterest ito ibe ipaid. iOverall, ithe ilifetime iobligations iand ivaluations iof ilong-term idebt iwill ibe iheavily idependent ion imarket irate ichanges iand iwhether ior inot ia ilong-term idebt iissuance ihas ifixed ior ifloating irate iinterest iterms.

A iliability iis isomething ia iperson ior icompany iowes, iusually ia isum iof imoney. iLiabilities iare isettled iover itime ithrough ithe itransfer iof ieconomic ibenefits iincluding imoney, igoods, ior iservices. iRecorded ion ithe iright iside iof ithe ibalance isheet, iliabilities iinclude iloans, iaccounts ipayable, imortgages, ideferred irevenues, ibonds, iwarranties, iand iaccrued iexpenses.

iThey ican iinclude ia ifuture iservice iowed ito iothers; ishort- ior ilong-term iborrowing ifrom ibanks, iindividuals, ior iother ientities; ior ia iprevious itransaction ithat ihas icreated ian iunsettled iobligation. iMost icompanies iwill ihave ithese itwo iline iitems ion itheir ibalance isheet, ias ithey iare ipart iof iongoing icurrent iand ilong-term ioperations.

Liabilities iare ia ivital iaspect iof ia icompany ibecause ithey iare iused ito ifinance ioperations iand ipay ifor ilarge iexpansions. iThey ican ialso imake itransactions ibetween ibusinesses imore iefficient. iFor iexample, iin imost icases, iif ia iwine isupplier isells ia icase iof iwine ito ia irestaurant, iit idoes inot idemand ipayment iwhen iit idelivers ithe igoods. iRather, iit iinvoices ithe irestaurant ifor ithe ipurchase ito istreamline ithe idropoff iand imake ipaying ieasier ifor ithe irestaurant.

The ioutstanding imoney ithat ithe irestaurant iowes ito iits iwine isupplier iis iconsidered ia iliability. iIn icontrast, ithe iwine isupplier iconsiders ithe imoney iit iis iowed ito ibe ian iasset.