RSM225
CH. 3: BUSINESS ORGANIZATIONS:
PARTNERSHIPS (GPPs, LLPs AND LPs)
Overview:
Three kinds of partnerships:
General partnership (“GPP”)
Limited liability partnership (“LLP”)
Limited partnership (“LP”)
General Partnerships (“GPP”):
(1) Description
Two or more legal entities (individuals, corporations) owning and operating a business together for profit
(2) Formation
a) Requirements:
Partnerships Act (“PAct”) says GPP arises automatically if 4 requirements met:
(i) 2 or more legal entities
Two or more individuals, corporations
(ii) carrying on an active commercial business
“active” means ongoing, not just isolated transaction(s)
“commercial” means buying and selling , not just buying to hold as an investment
jointly owning shares or property for investment income probably is not “active commercial business” unless done somewhat regularly
(iii) jointly owning and operating the same business together
more than just working together to promote each other’s goods or services
e.g. Shopper’s Drug Mart and Swiss Chalet each offering discount coupons for the other’s products
more than just sharing premises or assets
e.g. several accountants sharing same office premises and photocopier/fax to reduce overhead cost
distinguished from employer/employee relationship
(iv) to make and share profits
business must be carried on to make profit
also must be sharing profits
sharing profits means sharing revenues and sharing costs (since profit = revenues minus costs)
does not have to be equal sharing, or same ratio of sharing of revenues and expenses
sharing only revenues or costs does not qualify to create GPP
b) Partnership vs. corporation:
If the above 4 requirements are met but the business has been incorporated as a corporation, then the business is a corporation, not a partnership
c) Rules under the Partnerships Act (“PAct”):
PAct says that sharing of profits is a strong indicator that
PARTNERSHIPS (GPPs, LLPs AND LPs)
Overview:
Three kinds of partnerships:
General partnership (“GPP”)
Limited liability partnership (“LLP”)
Limited partnership (“LP”)
General Partnerships (“GPP”):
(1) Description
Two or more legal entities (individuals, corporations) owning and operating a business together for profit
(2) Formation
a) Requirements:
Partnerships Act (“PAct”) says GPP arises automatically if 4 requirements met:
(i) 2 or more legal entities
Two or more individuals, corporations
(ii) carrying on an active commercial business
“active” means ongoing, not just isolated transaction(s)
“commercial” means buying and selling , not just buying to hold as an investment
jointly owning shares or property for investment income probably is not “active commercial business” unless done somewhat regularly
(iii) jointly owning and operating the same business together
more than just working together to promote each other’s goods or services
e.g. Shopper’s Drug Mart and Swiss Chalet each offering discount coupons for the other’s products
more than just sharing premises or assets
e.g. several accountants sharing same office premises and photocopier/fax to reduce overhead cost
distinguished from employer/employee relationship
(iv) to make and share profits
business must be carried on to make profit
also must be sharing profits
sharing profits means sharing revenues and sharing costs (since profit = revenues minus costs)
does not have to be equal sharing, or same ratio of sharing of revenues and expenses
sharing only revenues or costs does not qualify to create GPP
b) Partnership vs. corporation:
If the above 4 requirements are met but the business has been incorporated as a corporation, then the business is a corporation, not a partnership
c) Rules under the Partnerships Act (“PAct”):
PAct says that sharing of profits is a strong indicator that