DFU8 - Discussion Forum Unit 8 Basic Accounting PDF

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Discussion Forum Unit 8 Basic Accounting...

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A partnership is legal business structure consisting of an association of two or more people who contribute money, property, or services to operate as co-owners of a business. • Formation by agreement. • Defined or limited life. Mutual agency. • Unlimited liability. • Non-taxable income at partnership level. • Co-ownership of property. • Limited capital investment. • Participation in both income and loss.

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What liability does Farah face as a result of the theft? As unlimited liability is one of the characterstics of partnerships, I think the result of emblezzment done by David will have negative impact on Sarah. As unlimited liability itself means that if there is any loss or debt occurred by one of the partner, the other partners are also responsible to pay the debt caused by their partner. In this case, we could see that Sarah received several calls from vendors who asked for payment which previously should be done by David. However, David did stole the money and the payment must be done despite having the money being stolen or lost. The things even got worse as we are also told that the business cash flow is tight which indicates there is a concern in covering the operating cost which is related to

the business operation. Therefore, I would say that the liabikity that Farah has to face as the result of emvlezzment done by David is she had to pay all the vendors even by using her own assets and there is a chance that the partnership will dissolves as the cash flow is tight (got worse due to this theft) and David being unfaithful https://www.lucahq.com/blog-posts/reasons-cashflow-is-tight#:~:text=Cash%20flow%20is%20the%20lifeblood,capital%2C %20or%20even%20financing%20debt.&text=Too%20much%20cash%2C %20on%20the,missed%20opportunities%20and%20slower%20growth.

Are you for or against a partnership? Please explain

Despite the disadvantages and the risks caused by partnership, I think I still could consider partnership. There are several reasons why I don’t think I will go against partnership. Advantages of Organizing as a Partnership When it comes to choosing a legal structure or form for your business, the most common options are sole proprietorships, partnerships, and different forms of corporations, each with advantages and disadvantages. Partnerships have several advantages over other forms of business entities, as follows: • Exemption from taxation at the partnership level. A significant advantage to forming a partnership is the exemption from taxation as a business entity. In other words, although the individual partners are taxed at the individual level, the partnership itself (as a business unit) is not subject to income tax. The tax characteristics of a partnership “flow through” to the individual partners. • Ease and lower cost of formation. Most business regulations tend to be written for corporations, which is to be expected given the complexities of many such companies. Partnerships, on the other hand, are simpler and have to comply with fewer regulations. Also, without shareholders, partnerships have fewer reporting requirements. The partnership formation paperwork also tends to be less cumbersome than that for other entities in most states. Overall, partnerships are simple to form, alter, and terminate. • Combined skills and financial resources. Combining business acumen and financial assets can give a partnership an advantage over sole proprietorships. • Flexibility in managing and running the business. Partnerships are often simpler to manage and run than other business structures (except for most sole proprietorships), and they can offer more management flexibility as well if the partners generally agree on management issues. Since there is no board of directors overseeing operations, partnerships can be nimble and make speedy changes— again, as long as the partners agree. • Easily changed business structure. It is a relatively easy process to convert a partnership to a corporation in the future. With no shareholders to consider, a partnership’s capital can be converted to shares of common stock. 

Informality. Unlike publicly traded corporations, partnerships do not need to prepare articles of incorporation, write bylaws, issue stock certificates to owners, document minutes or board meetings, pay incorporation fees to states, or file quarterly financial statements with the SEC. However, it is advised that partners create a written document detailing decision on issues such as profit sharing, dispute resolution procedures, partnership changes, and other terms that the partners might agree upon to prevent future complications....