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Communicating in Practice — BTN D-4
--- STUDY NOTES ---
ORGANIZATIONS WITH PARTNERSHIP CHARACTERISTICS
I.
Limited Partnerships
II.
Limited Liability Partnerships
III.
S Corporations
IV.
Limited Liability Companies
I. Limited Partnerships
These organizations are identified in its name with the words "Limited
Partnership," or "Ltd.," or "L.P."
A limited partnership has two classes of partners, general and limited. At
least one partner must be a general partner who assumes management
duties and unlimited liability for the debts of the partnership. The limited
partners have no personal liability beyond the amounts they invest in the
partnership.
A limited partnership is managed by the general partner(s). Limited
partners have no active role except as specified in the partnership
agreement.
A limited partnership agreement often specifies unique procedures for
allocating incomes and losses between general and limited partners.
The same basic accounting procedures are used for both limited and
general partnerships.
II. Limited Liability Partnerships
This is identified in its name with the words "Limited Liability Partnership"
or by "LLP."
This type of partnership is designed to protect innocent partners from
malpractice or negligence claims resulting from the acts of another
partner. When a partner provides service resulting in a malpractice claim,
that partner has personal liability for the claim. The remaining partners
who were not responsible for the actions resulting in the claim are not
personally liable for it.
Most states hold all partners personally liable for other partnership debts.
Accounting for a limited liability partnership is the same as for a general
partnership.
Communicating in Practice (Concluded)
Continued
III. S Corporations
Certain corporations with 100 or fewer stockholders can elect to be
treated like a partnership for income tax purposes. These corporations are
called Sub-Chapter S or simply "S" corporations. This distinguishes them
from other corporations, called Sub-Chapter C or simply "C" corporations.
"S" corporations provide stockholders with the same limited liability
feature as "C" corporations. The advantage to an "S" corporation is it
doesn't pay income taxes. If stockholders work for an "S" corporation,
their salaries are treated as expenses of the corporation.
The remaining income or loss of the corporation is allocated to
stockholders for inclusion on their personal tax returns. Except for "C"
corporations having to account for income tax expenses and liabilities,
the accounting procedures are the same for both "S" and "C"
corporations.
IV. Limited Liability Companies
A new form of business organization is the limited liability company. The
names of these businesses usually include the words "Limited Liability
Company" or an abbreviation such as "LLC" or "LC."
This form of business has certain features like a corporation and others
like a limited partnership. The owners, who are called members, are
protected with the same limited liability feature in corporations. While
limited partners cannot actively participate in the management of a limited
partnership, the members of a limited liability company can assume an
active management role.
A limited liability company usually has a limited life.
For income tax purposes, the IRS usually classifies a limited liability
company as a partnership.
Taking It to the Net — BTN D-5
1. The account titles given in the equity section of Advanced BioEnergy,
LLC are:
Teamwork in Action — BTN D-6
1.
Income (Loss)
Sharing Plan
Calculations
Baker
Warner
Rice
Total
(a)
$450,000/3 ...........................................................
$150,000
$150,000
$150,000
$ 450,000
(b)
$450,000 x ($200,000/$1,000,000) .......................
$ 90,000
$450,000 x ($300,000/$1,000,000) .......................
$135,000
$450,000 x ($500,000/$1,000,000) .......................
_______
_______
$225,000
Total allocated ................................
$ 90,000
$135,000
$225,000
$ 450,000
(c)
Net income ..........................................................
$ 450,000
Salary allowances ................................
$ 50,000
$ 60,000
$ 70,000
(180,000)
Balance of income ................................
270,000
Equally($270,000/3) ................................
90,000
90,000
90,000
(270,000)
Balance of Income ................................
$ 0
Total Allocated ................................
$140,000
$150,000
$160,000
(d)
Net Income ...............................................
$ 450,000
Interest allowances:
10% x $200,000 ................................
$ 20,000
10% x $300,000 ................................
$ 30,000
10% x $500,000 ................................
$ 50,000
Total interest ............................................
(100,000)
Balance of income ................................
350,000
Balance allocated equally ......................
116,666
116,667
116,667
(350,000)
Balance of income ................................
_______
_______
_______
$ 0
Shares of partners ................................
$136,666
$146,667
$166,667
2. Team members share solutions.
3. Answers will vary by team. One additional income sharing basis would
be to share income based on time worked in the partnership.
Entrepreneurial Decision — BTN D-7
1. Daniel, Craig, and their future partners would be wise to construct an
agreement that includes the following:
a) names (reputations) and contributions
2. The partnership form of business organization will have several
advantages for Daniel, Craig, and their partners. Three of these
3. Several disadvantages exist with the partnership form of organization.
Three of these include: (a) The greatest disadvantage is that each
Global Decision — BTN D-8
1. Byung-Chull Lee (also referred to as Lee Byung-Chull)
2. In the beginning, the company focused primarily on trade export,
selling dried Korean fish, vegetables, and fruit to Manchuria and
3. Samsung groups its affiliated companies into five areas:
Electronics
