Difference Between Partnership And Co Ownership Pdf
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Whether you are a co-owner or a partner of a business will determine the type and extent of your personal liability for debts, your involvement in the management and control of the enterprise, your personal interest in its revenues and how you are taxed on that income. Co-ownership involves owning a stock in the company say, in the form of actual stocks , while partnerships include more obligations. Partners contribute money, property or personal labor or skill, with the expectation of sharing in an organization's business profits and losses.
- The Difference Between a Co-Owner and a Partner in Business
- Difference between Partnership and Co-Ownership
- Partnership and Co Ownership
In partnership, there is an association of two or more persons who carry on common business for earning profit. They share its profits and losses as per oral or verbal agreement. Co-ownership refers to joint ownership in a property by more than one person.
The Difference Between a Co-Owner and a Partner in Business
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It would be difficult to conceive of a complex society that did not operate its businesses through organizations. In this chapter we study partnerships, limited partnerships, and limited liability companies, and we touch on joint ventures and business trusts. When two or more people form their own business or professional practice, they usually consider becoming partners. Partnership law defines a partnership Two or more persons carrying on a business as co-owners for profit.
In , there were more than three million business firms in the United States as partnerships see Table When we use the word partnership , we are referring to the general business partnership. There are also limited partnerships and limited liability partnerships, which are discussed in Chapter 20 "Hybrid Business Forms". Table Partnerships are also popular as investment vehicles. Partnership law and tax law permit an investor to put capital into a limited partnership and realize tax benefits without liability for the acts of the general partners.
Even if you do not plan to work within a partnership, it can be important to understand the law that governs it. Knowledge of the law can help you avoid partnership liability. Partnership is an ancient form of business enterprise, and special laws governing partnerships date as far back as BC, when the Code of Hammurabi explicitly regulated the relations between partners.
Partnership was an important part of Roman law, and it played a significant role in the law merchant, the international commercial law of the Middle Ages. In the nineteenth century, in both England and the United States, partnership was a popular vehicle for business enterprise.
But the law governing it was jumbled. Common-law principles were mixed with equitable standards, and the result was considerable confusion. Parliament moved to reduce the uncertainty by adopting the Partnership Act of , but codification took longer in the United States.
The Commissioners on Uniform State Laws undertook the task at the turn of the twentieth century. Despite its name, UPA was not enacted uniformly among the states; moreover, it had some shortcomings. An amended UPA appeared in , and further amendments were promulgated in , , , and Connecticut, West Virginia, and Wyoming adopted the or version.
The primary focus of RUPA is the small, often informal, partnership. Larger partnerships generally have a partnership agreement addressing, and often modifying, many of the provisions of the partnership act. A significant difference between a partnership and most other kinds of business organization relates to whether, and the extent to which, the business is a legal entity. A legal entity is a person or group that the law recognizes as having legal rights, such as the right to own and dispose of property, to sue and be sued, and to enter into contracts; the entity theory The concept of a business firm as a legal person, with existence and accountability separate from its owners.
When individuals carry out a common enterprise as partners, a threshold legal question is whether the partnership is a legal entity. The common law said no. In other words, under the common-law theory, a partnership was but a convenient name for an aggregate of individuals, and the rights and duties recognized and imposed by law are those of the individual partners.
By contrast, the mercantile theory of the law merchant held that a partnership is a legal entity that can have rights and duties independent of those of its members. During the drafting of the UPA, a debate raged over which theory to adopt. The drafters resolved the debate through a compromise.
RUPA moved more toward making partnerships entities. RUPA does not, however, relentlessly apply the entity approach. This is a very important point and a primary weakness of the partnership form: all partners are, and each one of them is, ultimately personally liable for the obligations of the partnership, without limit, which includes personal and unlimited liability.
This personal liability is very distasteful, and it has been abolished, subject to some exceptions, with limited partnerships and limited liability companies, as discussed in Chapter 20 "Hybrid Business Forms". Under both versions of the law, the partnership may keep business records as if it were a separate entity, and its accountants may treat it as such for purposes of preparing income statements and balance sheets.
Under both versions of the law, partnerships are not taxable entities, so they do not pay income taxes. In litigation, the aggregate theory causes some inconvenience in naming and serving partnership defendants: under UPA, lawsuits to enforce a partnership contract or some other right must be filed in the name of all the partners.
Similarly, to sue a partnership, the plaintiff must name and sue each of the partners. This cumbersome procedure was modified in many states, which enacted special statutes expressly permitting suits by and against partnerships in the firm name. In suits on a claim in federal court, a partnership may sue and be sued in its common name. The move by RUPA to make partnerships entities changed very little. RUPA, Section a. Under either law, a partner may bring onto the partnership premises her own property, not acquired in the name of the partnership or with its credit, and it remains her separate property.
And keep in mind that partnership law is the default: partners are free to make up partnership agreements as they like, subject to some limitations. They are free to set up property ownership rules as they like. Under federal bankruptcy law—state partnership law is preempted—a partnership is an entity that may voluntarily seek the haven of a bankruptcy court or that may involuntarily be thrust into a bankruptcy proceeding by its creditors.
The partnership cannot discharge its debts in a liquidation proceeding under Chapter 7 of the bankruptcy law, but it can be rehabilitated under Chapter 11 see Chapter 13 "Bankruptcy". Partnership law is very important because it is the way most small businesses are organized and because it is possible for a person to become a partner without intending to.
One salient change made by RUPA is to directly announce that a partnership is an entity: it is like a person for purposes of accounting, litigation, bankruptcy, and owning real estate. Partnerships do not pay taxes; the individual partners do. But in practical terms, what RUPA does is codify already-existing state law on these matters, and partners are free to organize their relationship as they like in the partnership agreement.
The most common way of forming a partnership is expressly—that is, in words, orally or in writing. Such a partnership is called an express partnership A partnership intentionally created and recognized, orally or in writing.
Assume that three persons have decided to form a partnership to run a car dealership. Baker contributes the building and space in which the business will operate. Carr contributes his services; he will manage the dealership. The first question is whether Able, Baker, and Carr must have a partnership agreement. As should be clear from the foregoing discussion, no agreement is necessary as long as the tests of partnership are met.
However, they ought to have an agreement in order to spell out their rights and duties among themselves. The agreement itself is a contract and should follow the principles and rules spelled out in Chapter 8 "Contracts" of this book.
In forming a partnership, three of these items merit special attention. And note again that if the parties do not provide for these in their agreement, RUPA will do it for them as the default. As discussed earlier in this chapter, a partnership is not limited to a direct association between human beings but may also include an association between other entities, such as corporations or even partnerships themselves. A joint venture —sometimes known as a joint adventure, coadventure, joint enterprise, joint undertaking, syndicate, group, or pool—is an association of persons to carry on a particular task until completed.
Throughout the middle part of the twentieth century joint ventures were common in the manufacturing sector. By the late s, they increasingly appeared in both manufacturing and service industries as businesses looked for new, competitive strategies.
Partnership rules generally apply, although the relationship of the joint venturers is closer to that of special than general agency as discussed in Chapter 14 "Relationships between Principal and Agent". Joint venturers are fiduciaries toward one another.
Although no formality is necessary, the associates will usually sign an agreement. The joint venture need have no group name, though it may have one. Property may be owned jointly. Profits and losses will be shared, as in a partnership, and each associate has the right to participate in management. Liability is unlimited. Sometimes two or more businesses will form a joint venture to carry out a specific task—prospecting for oil, building a nuclear reactor, doing basic scientific research—and will incorporate the joint venture.
Increasingly, companies are forming joint ventures to do business abroad; foreign investors or governments own significant interests in these joint ventures. For GM the joint venture was an opportunity to learn about lean manufacturing from the Japanese company, while Toyota gained its first manufacturing base in North America and a chance to test its production system in an American labor environment.
Until May , when the copartnership ended and the plant closed, NUMMI built an average of six thousand vehicles a week, or nearly eight million cars and trucks. These vehicles were the Chevrolet Nova —88 , the Geo Prizm —97 , the Chevrolet Prizm — , and the Hilux —95, predecessor of the Tacoma , as well as the Toyota Voltz, the Japanese right-hand-drive version of the Pontiac Vibe.
The latter two were based on the Toyota Matrix. Family members can be partners, and partnerships between parents and minor children are lawful, although a partner who is a minor may disaffirm the agreement. If the business cannot be performed within one year from the time that the agreement is entered into, the partnership agreement should be in writing to avoid invalidation under the Statute of Frauds. Able, Baker, and Carr decide that it makes good business sense to choose an imposing, catchy, and well-known name for their dealership—General Motors Corporation.
There are two reasons why they cannot do so. First, their business is a partnership, not a corporation, and should not be described as one. Second, the name is deceptive because it is the name of an existing business.
Difference between Partnership and Co-Ownership
For details on it including licensing , click here. This book is licensed under a Creative Commons by-nc-sa 3. See the license for more details, but that basically means you can share this book as long as you credit the author but see below , don't make money from it, and do make it available to everyone else under the same terms. This content was accessible as of December 29, , and it was downloaded then by Andy Schmitz in an effort to preserve the availability of this book. Normally, the author and publisher would be credited here.
Partnership and Co-ownership are two different segments in a business which should not be misunderstood. The earlier article on essential features for formation of partnership explains in detail some of the difference between partnership and co-ownership. The mere fact that two or more persons jointly employ their property in a business and share its income does not mean that there is partnership between them. They are called co-owners. For instance, sons who inherit some property from their father, are not partners even though the property was to be managed jointly and its income were to be shared.
Partnership and Co Ownership
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In partnership, there is an association of two or more, persons who carry on common business for earning profit. They share its profits and losses as per oral or verbal agreement. Co-Ownership refers to joint ownership in a property by more than one person.