Partnership can simply be referred to as a business organization set up by and between two or more people for the purpose of making profits. In partnership generally, the partners are involved in the management and running of the business activities. They are also entitled to profits and liable to risks or losses resulting from the partnership.Partnerships are different from incorporated companies. Though both business entities can be legally registered, formed by two or more persons, and regulated by the legal framework of a country, a partnership does not have a separate legal personality also known as corporate personality. This means that the business is not distinct from the partners in the eyes of the law and the partners can be held liable for the business failures.There are types of partnerships which include general partnership, nominal partnership and so on. . There are two types of general partnerships: unlimited and limited. However, this paper will concentrate basically on the unlimited partnership which is a kind of general partnership. Like all partnerships, an unlimited partnership may be regulated (powers, duties, profit percentages, equity holdings of partners, etc) by a Memorandum of Partnership.
This paper will examine the definition and core features of an unlimited partnership, the conditions an enterprise must fulfill to qualify to be registered and called an unlimited partnership. Lastly, it will provide a classical case study on the subject, questions and solutions in relation to the case study to provide a better understanding of the topic.
An unlimited partnership is a business entity with at least two persons which pool together resources, runs its business activities or the management of its assets or resources and being jointly and severally liable for its debts.
An unlimited partnership is a legal entity binding two or more business partners in responsibility and liability for their business and in the event of debts incurred by the business which overrides the assets, the partners will be held liable. Put in simpler terms, unlimited partners are personally and equally liable for the debts of the partnership business upon insolvency. In an unlimited general partnership, all partners in the business are equally responsible for the debts and other liabilities incurred by the business, and they are all involved in its operations. In limited partnerships, individuals partner together and share in its profits, but are not responsible for daily business activities and do not share in the business’s liabilities. Unlimited partnerships are different from unlimited companies. Unlimited companies have a corporate or legal personality but an unlimited partnership does not.’
An unlimited partnership is set up by a simple registration, no minimum capital requirement and simple structure of the business with much less formalities.
Unlimited liability allows creditors to attach and seize personal assets to satisfy business financial obligations and/or debt. This is shared by all owners regardless of the amount they have individually invested.
CONDITIONS TO BE AN UNLIMITED PARTERSHIP
There are no strict formalities to the creation of unlimited partnership but there are a few basic conditions to be met to qualify as an unlimited partnership.
Tony, ElieandFuzi have been running a restaurant in Hamra, known as Meat the Bun. They have always saved up money in a small safe in their shop. However, recent strings of thefts led them to go to a bank to request for an account. They were advised to first register their business. The trio borrowed money from the bank to operate their restaurant in Bliss Street – Beirut.
The restaurant was doing well and all profits were equally distributed over the three partners. Later on, after the launching period, another big restaurant was set up by a very rich business man who just came back from Italy and hired a French Chef. Meat the Bun restaurant began to have a string of bad performances and low turn over as they lost many customers. New consumers who actually tried the restaurant were not converted into frequent consumers, with time the restaurant was not breaking even, and accordingly the loses were also divided equally among the partners.
While Tony traveled to India to learn a new recipe and Fuzi traveled back home to bury his aged uncle, Elia made a desperate decision to save their business. She mortgaged the building which they initially bought for the business for another loan and hired a German Chef whom she could only pay for two months after entering a contract of employment with her for two years. The German Chef has now sued for his balance and compensation after she fired him without notice or cause.
Unfortunately, the restaurant was not able to survive their initial losses.Tony and Fuzi returned and they all jointly announced Meat the Bun’s bankruptcy a year after registration and the three partners were liable to pay the loan back to the bank, the mortgage sum or forfeit the building and the compensation awarded by the court in favor of the German Chef.
The case of unlimited partnership was reflected in this case as the profits, loses, shares, and benefits were equally distributed over the partners.
Unlimited partnership is the partnership between different persons when they hold the same liability and this was the case of Meat the Bun.
QUESTIONS AND ANSWERS
This business set up isan Unlimited Partnership.
A limited liability company requires much formalities
There are higher taxes charged
It requires much funds to incorporate and keep afloat
Much bureaucracy in administration
Lack of privacy due to required submission of documents related to business annually
In this scenario, Elia obtained a mortgage loan in respect of their building so as to expand the business and hire a German chef to compete with their rivals. This action is binding upon all the partners whether they were present or not.
Thus, in the event of failure to repay the mortgage loan, and fulfill all the contractual obligations to the Chef, they will all be held equally liable for the consequences and would forfeit the building put forward as security for the loan.
Lack of capacity to create binding contracts
Lack of capacity to operate as a single business unit such as opening account as a business
This could have been dealt with by an initial registration so they could keep their money in the bank and prevent it from being frequently stolen. This could have helped them reduce the loan they would have taken.
Also, they could have taken a market survey at their new location to ensure they know how to develop the business.
Lastly, the competition should have been addressed quickly to ensure consumers stay loyal to their restaurant.
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