Actg 340 Midterm Study Guide

* Chapter 12: Partnerships * Advantages: * Pass-through taxation * Ease of formation * Simplified recordkeeping * Favorable taxation * Increased ability to raise funds * Disadvantages * Unlimited liability * Co-ownership of property * Non-deductible costs * Limited life * Mutual agency * Partner disagreements * Limited Liability Companies * Relatively new form of business and is primarily controlled at the state level. The LLC combines the most attractive features of a corporation with the best features of a partnership. * Advantages: * Limited liability * Easy of formation * Simplified record-keeping * Favorable taxation * Flexibility of operations * Disadvantages * Limited corporate characteristics * Limited life * Lack of legal precedents * Four Methods to divide profits and losses * Fixed Ratio method * Interest on partners’ capital balances method * Salaries to partners method * Salaries to partners and interest on partners’ capital balances method * Changes of Ownership * Admission of a Partner-Through Purchase Among Partners * Admission of a Partner- Through Investment of Additional Assets * Admission of a Partner-Through Bonus to the Old Partners * Admission of a Partner-Through Bonus to the New Partners * Withdrawal of a Partner * 2 ways a partner can withdraw from a partnership * Voluntarily, through the sale of his or her interest to the remaining partner(s) * Involuntarily, for one of several reasons like death or mandatory retirement * Withdrawal of a Partner-Through Purchase Among Partners * Withdrawal of a Partner-Through