Unlocking Investor Benefits: The Power of Limited Partnerships
Introduction
Any
person in a partnership business can be said to be the CEO of the business.
This is because partnership involves sharing of all aspects of the business
such as management, liabilities, profits and also loss. Members of such a
partnership have to share control of the business, but unlike corporations,
control is limited to a few people. Anyone looking to be his or her boss ought
only to be a member of a partnership. Limited partnerships are a little bit
unique because, in addition to a general partner, they have to have at least a
single limited partner. A limited partner does not take part in the actual
management and control but is the same as a shareholder in the company. They
have limited liability to the business. Limited liability, in this case, means
that the liability of these partner does not exceed the amount put in the
business as an investment. This is unlike the general partners who lay a more
direct role in the management of the business. Their liability is, therefore,
unlimited and exceeds whatever they put in as an investment. Partners enjoy a
greater level of freedom in the governing process of the business. They also
enjoy their profits with very little taxation, and they enjoy a good flow of
assets since the businesses are not fully distinct from the ownership. Being a
partner in a limited partnership as a limited partner offers no management
responsibilities and at the same time loss liability cannot exceed the amount
invested in the business. It is therefore, quite easy to choose between being
an investor at a partnership than at a Limited Liability Company because of
more, control, more freedom and advantages of low amount of taxation.
A
partnership refers to the kind of business operations that exists between two
or more people who share the management functions alongside the profits and
losses of the business. Despite the federal government recognizing the
existence of various types of partnerships, two of them are the most common
forms of organizations. These types of companies are general and limited
partnerships (Meyer, 2014).
In general partnerships, the partners manage the company by running various
responsibilities within the business. However, in a limited partnership, there
exist general and limited partners; general partners assume the liability of
the business while limited partners only serve the role of investors (Meyer, 2014). Therefore, the
most investor has decided to become partners in a limited partnership instead
of purchasing stock in an open corporation as per the reasons explained below.
The
first reason why investors have prioritized the idea of becoming a partner in a
limited partnership business is attributed to the limited liability limits that
they obtain. Becoming a partner in a limited partnership business enables the
investors to have limited responsibility for the debts of this form of business
(Meyer, 2014). This means
that the debts of the business can be shared among these partners to the extent
of the shares invested in the business. Their private properties will not be
interfered with in the cause of settling the debts of the business (Sensoy, Wang & Weisbach, 2014).
Moreover, the investors do not incur the total losses of the firm; rather the
losses are equally distributed among the partners. Therefore, this reduces the
burden of settling the debts of the business as it is spread across the
partners.
Besides
these, the investors within this kind of business have no turnover issues in
cases where they decide to leave the business. When the investors want to exit
the business, they can be replaced with other willing investors without the
dissolution of the partnership business (Sensoy, Wang & Weisbach, 2014). Besides this necessitating
the efficient and proper functioning of the market, the investors have the
freedom to choose between leaving the organization and staying. Therefore, the
partnership business is assured of stability since dissolution causes some of
form of physical, financial, and psychological instability within the
organization (Gregory, Jeanes, Tharyan,
& Tonks, 2013).
Various
reasons have prevented investors from purchasing stock of an open corporation.
Firstly, by buying this kind of stock exposes these investors to the risks of
being general partners. In this case, they are required to take the shield of
all the burdens of the business's debts and obligations (Gregory et al., 2013(Gregory et al., 2013(Gregory et
al., 2013(Gregory et al., 2013). This means that when the company is
sued because of bankruptcy, the investors will be required to use their wealth
and resources in settling all the debts and liabilities incurred by the
partnership form of business (Sensoy,
Wang & Weisbach, 2014). Besides these, the investor will be required
to take part in the daily operations of the company. This will entail making
decisions on behalf of the company and hence assume the responsibility for
their decisions.
Moreover,
purchasing the stock of an open corporation will expose the investors to
compliance challenges. These investors will be required to hold meetings and
produce a detailed partnership agreement of the business (Gregory et al., 2013).
Therefore, the investors may have challenges in abiding with the agreement they
drafted. This is because of the dynamic nature of the employees working within
the partnership business who have various references and choices (Gregory et al., 2013). These
decisions may be contrary to the expectations of the investors and hence
causing the business to experience technical challenges as a result of failing
to comply with the set rules and regulations.
References
Gregory, A., Jeanes, E., Tharyan, & Tonks, (2013).
Gregory, A., Jeanes, E., Tharyan, R., & Tonks, I. (2013). Does the stock
market gender stereotype corporate boards? Evidence from the market's reaction
to stakeholders' trades. British Journal of Management, 24(2),
174-190.
Meyer, T. (2014). The Limited Partnership as Part of the
Humanity's DNA. In Private Equity Unchained (pp. 62-79). Palgrave
Macmillan UK.
Sensoy, B. A., Wang, Y., & Weisbach (2014). Limited
liability performance and the maturing of the private industry. Journal of
Financial Economics, 112(3), 320-343.
Additional articles
A toddler is a child aged between the age of one and three. The toddler years are a great moment for social cognitive and emotional development including language development. The pre-school age is the children that are from three to four years ol...Toddlerhood-and-Preschool-Language-Development …
Read ArticleIn the conventional human society, there are issues of diversity and variations in the demographical features of human beings. It is to say that there are innate characteristics that are unique to one group of people but completely different in an...Racial-relations-and-conflicts-in-the-Human-Society …
Read ArticleA comparison between Frederick Douglass Autobiography and 12 years a slave. Frederick Douglass Autobiography The autobiography begins by giving a brief story about the roots of Frederick Douglass. Douglass was the son of a slave owner and b...A-comparison-between-Frederick-Douglass-Autobiography-and-12-years-a-slave …
Read Article