Page 134 - Business Principles and Management

Chapter 5 • Proprietorships and Partnerships

5.3 Partnership

Goals Terms
• Explain advantages and • partnership • unlimited financial
disadvantages of partnerships. • limited partnership liability
• Describe the types of businesses
suited to the partnership form
of business.

The Nature of Partnerships

Jennifer York, who operates the proprietorship mentioned earlier, is faced with
the problem of expanding her business. She has run the business successfully for
over 10 years. She sees new opportunities in the community for increasing her
business, but she does not wish to assume full responsibility for the undertaking.
She realizes that the expansion of the business will entail considerable financial
and managerial responsibilities. She also realizes that in order to expand, she
needs additional capital, but she does not want to borrow the money. Because of
these reasons, she has decided that it would be wise to change her business from
a proprietorship to a partnership, a business owned by two or more people.
Robert Burton operates an adjoining bakery, where he bakes fresh bread and
pastries daily. He has proven to be honest and to have considerable business
ability. Combining the two businesses could result in more customers for both
groceries and fresh baked goods. Customers who have been coming to the bake
shop may become grocery customers also. And those who have been buying at
the grocery and fruit market may become customers of bakery products. A dis-
cussion between York and Burton leads to a tentative agreement to form a part-
nership if a third person can be found who will invest enough cash to remodel
both stores to form one large store and to purchase additional equipment. The
financial statement for Burton’s business is shown in Figure 5-3.

FIGURE 5-3 Balance Sheet for Robert Burton

ASSETS CLAIMS AGAINST ASSETS

Cash $ 10,560 Accounts Payable
(Liabilities) $ 7,200
Merchandise 3,600
R. Burton, Capital 153,600
Equipment 26,640
Land & Buildings 120,000

Total $160,800 Total $160,800

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