Agriculture Reference
In-Depth Information
However, it is strongly urged that if you consider joining a partnership, that the partnership
agreement should be in writing to avoid disagreement and misunderstanding among partners
at a later date.
Partnerships can be formed by law whenever two or more people act in such a way that
reasonable people would be led to believe they are associated for business purposes. In 2006,
there were approximately 2.9 million partnerships in the United States, and they accounted
for about 10 percent of total business receipts. Partnerships are the simplest form of business
organization by which a number of people can pool their resources and talents for mutual
benefi t.
There are basically two kinds of partnership: general partnerships and limited partner-
ships. Below we discuss how each of these partnership arrangements works in agribusiness.
General partnerships
By far the most common form of partnership is what is called a general partnership.
Continuing with our Fragrant Floral example—after a couple of years in operation, Jessica
Alverson has been very impressed with one of her employees, Erika Lewandowski. Erika
has expressed an interest in becoming involved in the business, and has some money from
an inheritance she is willing to invest in the business. Jessica and Erika decide to enter a
partnership, and rename the business Fragrant Floral and Perfect Gifts. The new name
refl ects the partner's desire to expand the business into a broader line of gift items. So, with
Erika's commitment of capital and her desire to be further involved in the business, a new
partnership is formed.
In a
general partnership
, each individual partner—regardless of the percentage of capi-
tal contributed—has equal rights and liabilities, unless stated otherwise in a partnership
agreement. A general partner has the authority to act as an agent for the partnership, and
normally participates in the management and operation of the business. Each general partner
is liable for all partnership debts, and may share in profi ts, in equal proportion with all other
partners. If the partnership struggles and has fi nancial problems, all liabilities are shared
equally among the partners for as long as suffi cient personal resources exist.
However, when one partner's resources are exhausted, remaining parties continue to be
liable for the remaining debt. General partners may contract among themselves to delegate
certain responsibilities to each other, or to divide business revenues or costs in some special
manner (e.g., according to funds invested or job responsibility). Each general partner can
bind the partnership to fulfi ll any business deal made. While the partnership is usually treated
as a separate business for the purposes of accounting, it is not legally regarded as an entity
in itself, but as a group of individuals or entities. Thus, there is no separate business tax paid
by the partnership. Like the proprietorship, partners may not pay themselves a salary. Money
left at year's end is divided among the partners and this is their profi t or “salary” from the
partnership. The income is taxed at the individual rate.
Limited partnership
All partnerships are required by law to have at least one general partner who is responsible
for the operation and activities of the business, but it is possible for other partners to be
involved in the business on a limited basis. A
limited partnership
permits individuals
to contribute money or other ownership capital without incurring the full legal liability of
a general partner. A limited partner's liability is generally limited to the amount that the
