TYPES OF BUSINESS ORGANIZATION
[ 5.2 ] Partnerships and Franchises
[ 5.2 ] Partnerships and Franchises
Learning Objectives
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Explain the characteristics of different types of partnerships.
Analyze the advantages of partnerships.
Analyze the disadvantages of partnerships.
Describe how a business franchise operates.
Key Terms
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partnership
general partnership.
limited partnership,
limited liability partnership
articles of partnership,
assets,
business franchise
royalties.
Unlike a sole proprietorship, a partnership
is a business owned and operated by two
or more people.
Three TYPES of Partnerships
•General Partnership
•Limited Partnership
•Limited Liability Partnerships
The Characteristics of Partnerships
Compare and Contrast How do limited liability partnerships differ from the other two types of
partnerships?
General Partnership
• The most common type of partnership is a
general partnership.
• In a general partnership, all partners share
equally in responsibility and liability.
• In a general partnership, all partners are
responsible for the business.
If you form a general partnership,
your partner’s actions directly affect
you.
Limited Partnership
• Another type of partnership is a limited
partnership.
• In a limited partnership, one partner must be
a general partner or responsible and liable for
the business.
• The other partners are limited partners.
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The limited partner only contributes
money and has limited liability.
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Limited Liability Partnership
• Only some individuals are allowed to form
such partnerships.
• Doctors, lawyers, and accountants are allowed
to form limited liability partnerships.
• In these partnerships, liability is limited.
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In limited liability partnerships (LLPs),
each partner is a limited partner and
only responsible for his own actions.
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In a limited partnership, one partner
must be fully liable and responsible.
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Liability
• It is important to remember that liability is the
legal obligation to pay all debts.
• In the three different forms of partnerships,
liability differs.
• The varying degrees of liability determine the
various types of partnerships.
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The Characteristics of Partnerships
The table shows how the same business loss might be shared by partners in three different
partnerships. Synthesize Why does the personal liability of the partners differ in these scenarios?
Advantages of Partnerships
• Ease of Start-Up
• Financial Impact
• Shared Decision Making
• Few government regulations.
Setting up articles of partnership with an attorney helps partners define how their business will
be managed. The articles of partnership may also clarify how disagreements will be resolved.
Disadvantages of Partnerships
Limited liability partnerships have fewer disadvantages than partnerships with general
partners. All partnerships, however, have the potential for conflict.
• Unlimited Liability
• Potential for Conflict
• Lack of Permanence
When a partnership goes out of business, general partners are fully liable for all the
business’s debts. The liability of limited partners extends only to their initial
investment.
Disadvantages of Partnerships
Make Decisions What do the partners in this business gain by taking on a new partner? What do they
give up?
The Franchise Alternative
Sole proprietorships can suffer from a lack of resources or the lack of skills on the part of
the owner. Some people solve these problems by forming partnerships. Others choose
another form of business—a franchise.
Franchise
A franchise is a semi-independent business.
The owner of a franchise pays a fee to a parent company
in exchange for the right to sell the parent company’s
products.
The owner of the franchise must conform to the parent
company’s rules.
The Franchise Alternative
UPS Stores, which handle mailing, shipping, and business services, are just one example of a franchise.
Many familiar restaurants are franchises.
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The Franchise Alternative
Analyze Information Which aspect of franchising might be helpful for a relatively inexperienced
entrepreneur?
Nonprofit Organization
• A nonprofit organization is a business that
does not operate for profits.
• Nonprofit organizations serve society.
• The American Red Cross is an example of a
nonprofit organization.
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The American Red Cross is a nonprofit
organization.
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Nonprofit organizations serve society.
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Nonprofits
Nonprofit hospitals like this one seek to make money. They invest some of that profit in new
technology and expansion, but much of it goes to charity care and community health programs.
The Franchise Alternative
The chart compares profits when the same revenue is earned by three types of businesses. Analyze
Charts Why does the franchise owner have less profit than the sole proprietor?
Quiz: The Characteristics of Partnerships
Which of these is an advantage that general partners alone enjoy in a limited partnership?
A.
B.
C.
D.
control of business operations
limited liability
share of investment
share of profits
Quiz: Advantages of Partnerships
What is an advantage that the general partners who own a partnership have that the
owner of a sole proprietorship may not have?
A.
B.
C.
D.
no need to follow government regulations
better access to capital
ease of start-up
no need to hire employees
Quiz: Disadvantages of Partnerships
Suppose a business is owned by two partners. What skill does each partner need that a
sole proprietor would not necessarily need?
A.
B.
C.
D.
decision-making ability
management expertise
ability to collaborate with an equal
advertising expertise
Quiz: The Franchise Alternative
What is an advantage of being a franchisee?
A.
B.
C.
D.
brand recognition
control over products sold to customers
franchising fees
royalty payments