Legal Characteristics of Partnerships - ANSWERS1) Defined as "an association of two or more persons to carry on business as co-owners for profit."
2) Are common especially in the legal, medical, and accounting professions. Professionals in service professions often choose the partnership as the le...
Advanced Financial Accounting Exam 2
Questions & Answers
Legal Characteristics of Partnerships - ANSWERS1) Defined as "an association of two
or more persons to carry on business as co-owners for profit."
2) Are common especially in the legal, medical, and accounting professions.
Professionals in service professions often choose the partnership as the legal form for
doing business.
3) Have never grown to the huge size of large corporations primarily because of the
unlimited personal liability assumed by each partner. *KEY DISADVANTAGE
Legal Characteristics of Partnerships continued.. - ANSWERS4) The most distinctive
aspect of partnership accounting centers on the maintenance of separate equity
(capital) accounts for each partner.
5) Typically the basis for changes to each partners capital account will be found in a
written articles of partnership agreement, or if no written articles exist, the Uniform
Partnership Act.
The Articles of Partnership - ANSWERSDescribe how initial investments, income
allocation, withdrawals of profits by partners, admission of new partners, and withdrawal
of partners will affect partners' capital accounts.
Subchapter S Corporations - ANSWERS1) Have nearly all the legal characteristics of
corporations including limited liability of owners.
2) Have profits that pass through to owners similar to partnerships.
3) Ownership is by law limited to 100 stockholders.
4) The stockholders must be individuals, estates, trusts and certain tax-exempt entities.
Limited Partnerships (LPs) - ANSWERSHas at least one "limited" partner who may not
participate in management in any way but whose personal losses for partnership debt
are limited to the amount invested. The limited partnership must also have at least one
general partner with unlimited liability.
Limited Liability Companies (LLCs) - ANSWERS1) All owners are liable only for their
own acts and omissions, and the acts and omissions of those under their direct
supervision.
2) Owners of these entities do not have unlimited personal liability for the negligent or
fraudulent acts of other partners not under their control.
Partnership Legal Form Advantages - ANSWERS1) Flexibility in defining relationships
2) Allows a firm to broaden the breadth and depth of knowledge residing within the firm
3) Allows for sharing work burdens across multiple people as well as sharing
administrative support
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