ECONOMICS TOPIC 5 LESSON 2

The most common type of partnership is the general partnership. In this type, all partners share equally in both responsibility and liability. Partners share some of the economic responsibility of the business based on how much they contribute to launching the partnership. Similarly, they share proportionately in the rewards from the business.

In a limited partnership, only one partner is required to be a general partner. That is, only one partner has unlimited personal liability for the firm’s actions. The remaining partner or partners contribute only money. If the business fails, they can lose only the amount of their initial investment. If the business succeeds, though, limited partners share in the profits.

The limited liability partnership (LLP) is a newer type of partnership recognized by many states. In this type of partnership, all partners are limited partners. An LLP functions like a general partnership, except that all partners have limited personal liability in certain situations, such as another partner’s mistakes.

Like proprietorships, partnerships are easy and inexpensive to establish. The law does not require a written partnership agreement. Most experts, however, advise partners to work with an attorney to develop articles of partnership, or a partnership agreement.

A major advantage of partnerships is the ability to raise capital. In a partnership, more than one person contributes assets, or money and other valuables. As a result, these businesses can raise more capital than a sole proprietorship. 

In a sole proprietorship, the owner has the burden of making all business decisions. In a partnership, the responsibility for the business may be shared. 

Unless the partnership is an LLP, at least one partner has unlimited liability. As in a sole proprietorship, any general partner has full responsibility for any financial obligations the firm takes on. 

As you learned earlier, a franchise is a contract issued by a local authority that gives a single firm the right to sell its goods within an exclusive market.

A business franchise is a semi-independent business that pays fees to a parent company. In return, the business is granted the exclusive right to sell a certain product or service in a given area.