Disadvantages of Partnerships

Unlimited LiabilityAs we have noted, each general partner is personally responsible for all debts of the business, whether or not that particular partner incurred those debts. General partners thus run the risk of having to use their personal assets to pay creditors. Limited partners, however, risk only their original investment.

Lack of ContinuityPartnerships are terminated in the event of the death, withdrawal, or legally declared incompetence of any one of the general partners. However, that partner's ownership share can be purchased by the remaining partners. In other words, the law does not automatically provide that the business shall continue, but the articles of partnership may do so. For example, the partnership agreement may permit surviving partners to continue the business after buying a deceased partner's interest from his or her estate. However, if the partnership loses an owner whose specific skills cannot be replaced, it is not likely to survive.

Effects of Management DisagreementsThe division of responsibilities among several partners means the partners must work together as a team. They must have great trust in each other. If partners begin to disagree about decisions, policies, or ethics, distrust may cloud the horizon. Such a mood tends to get worse as time passes – often to the point where it is impossible to operate the business successfully. To reduce disagreements, a number of issues can be settled when forming the partnership.

Frozen Investment It is easy to invest money in a partnership, but it is sometimes quite difficult to get it out. This is the case, for example, when remaining partners are unwilling to buy the share of the business that belongs to the partner who is leaving. To prevent such difficulties, the procedure for buying out a partner should be included in the articles of partnership.

In some cases, a partner must find someone outside the firm to buy his or her share. How easy or difficult it is to find an outsider depends on how successful the business is.

I. VOCABULARY PRACTICE

A) Explain the meaning of the following phrases of words:

1. to incur debts

2. partnerships find it hard to get long-term financing

3. to stand a better chance of doing sth

4. to be highly motivated to do one’s best

5. distrust may cloud the horizon

6. to have a good credit rating

7. to have complimentary skills

8. frozen investment

B) Find in the text synonymous phrases to the following:

1. to conclude a contract

2. to give big loans

3. to be reluctant to purchase sth

4. to inform lenders

5. to leave a partnership

C) In each horizontal group underline the odd word (which does not belong to the group of synonyms):

1. partner sole proprietor owner master

2. heir successor legatee legator

3. profit income revenue receipt

4. dispute difference discharge disagreement

5. capital investment fund mortgage

6. to found to establish to form up to put up

7. liable answerable languorous responsible

8. dissolution cancellation disjunction termination

9. extension property estate ownership

10. expertise explanation experience competence

II. COMPREHENSION

A) Answer the following questions:

1. What is a partnership?

2. What is the legal maximum of co-owners in a partnership?

3. What are the two main types of partners and what is the difference between them?

4. How is each partner taxed?

5. What must the general partner do if he wants to withdraw from a partnership?

6. What are the articles of partnership and what do they describe?

7. What are the similarities and the differences between advantages and disadvantages of a sole proprietorship and partnership?

8. Why is it sometimes difficult to get your money out of business when you want to withdraw from a partnership?

B) Mark the statements with TRUE or FALSE:

1. A partnership can consist only of limited partners.

2. Partnerships are the least popular form of business ownership.

3. Partnerships are taxed twice.

4. The status of a general partner is equal to the status of a limited partner.

5. A partnership can comprise no more than 4 partners.

6. The share in the profit of a partner depends on the size of his/her capital investment.

7. The problem sharing in a partnership leads to more effective decision making.

8. If a partnership fails, the debts are paid with the personal assets of both general and limited partner.

C) Underline the correct variant to complete the definition:

1. This partner doesn’t exist in reality, his name is added to the partnership in order to obtain a loan from a bank – (dormant, limited, nominal).

2. This partner is active and everybody knows him as a partner – (active, ostensible, general).

3. This partner is not active and risks only the original investment – ( silent, limited, secret).

III. DISCUSSION

1.If you had a chance to start a business, would you like to be a sole proprietor or to work in a partnership?

2. When forming a partnership what kind of partner would you like to be – a general or a limited one? Give your reasons.

3. What do you think about family business when all the partners are family members?

Would you form a partnership with your spouse or any other close relative? What conflicts may arise in such a partnership?

4. To your mind, compatibility between partners – is it important or not so much?

IV. FOCUS ON LANGUAGE

The word ACCOUNT

Match the meaning of the words in bold with their definition in the right:

1. The consulting company has won 2 new accounts in Singapore	a) represents
2. On no account should these products be released before they are checked.	b) on credit
3. Labour accounts for 45% of the manufacturing costs.	c) because of
4. Mrs Baker is our regular customer and she may buy on account.	d) for themselves
5. By all accounts, we will benefit greatly if we are going to expand next year.	e) big customers
6. Agents buy and sell on their own account.	f) explain
7. I cannot account for this unexpected decrease in sales.	g) consider
8. Our development project has to be adjusted on account of the shortage of personnel.	h) under no circumstances
9. Our solicitor has received a detailed account of all our new customers’ business deals.	i) report
10. A good manager should take the good performance of his employees into account.	j) people say

V. CASE STUDY

Imagine that you have a partnership with your best friend. A serious conflict arose between you due to his/her dishonest behaviour towards you. Right now you don’t have the money to buy his/her share of business and you don’t want to sell your share to him/her because your business is rather profitable. What would you do in this situation?

VI. TRANSLATION

1. Asociatul meu a făcut datorii fără ştirea mea şi acum eu trebuie să le achit.

Мой партнёр влез в долги без моего ведома и теперь мне придется их выплачивать.

2. Înainte de a forma parteneriatul eu m-am consultat cu avocatul meu.

Прежде чем создать партнёрство, я проконсультировался со своим адвокатом.

3. Uneori este destul de dificil să te retragi din parteneriat.

Иногда бывает очень трудно выйти из партнёрства.

4. Eu şi asociatul meu am hotărât să punem în comun capitaluri pentru a primi un credit mai mare de la bancă.

Мой партнёр и я решили объединить наш капитал, чтобы получить более весомый кредит в банке.

VII. ROLEPLAY

Work in pairs. Imagine that you are a sole proprietor and you own a restaurant. You want to offer 30 percent partnership to your chef. Discuss with him the terms on which you are going to start a mutually profitable business. Use the following questions:

Ø How will the profits be divided between partners?

Ø Who will approve payments and sign checks?

Ø Will profits be poured back into business or distributed to partners?

Ø Which employees will report to which partners?

Ø How will the responsibilities be divided between partners?

Ø What happens if one partner is dissatisfied with the way another partner handles a particular responsibility?

Ø How much time will each partner be required to devote to business?

Ø If the business goes rough, how will the partners decide whether to give up or to try to turn it around?

Ø How will the conflicts be settled? Will they be ended by deferring to the partner with the most expertise in the matter or by a neutral expert third party?

CORPORATIONS

Learning objectives:

1. Define such form of business ownership as corporation