Business Associations

A partnership exists when two or more persons associate to conduct business. The associations may operate under different degrees of formality, ranging from verbal agreements and informal to formal contracts and legalized in the area in which the enterprise carries on its operations. The main advantage of the partnership is its low cost and ease of training. The disadvantages are similar to those associated with the individual: 1) unlimited liability, 2) impermanence of the organization, 3) difficulty of transferring ownership and 4) difficulty in obtaining large sums of capital.
The tax treatment of a partnership against the corporation may be an advantage or disadvantage, depending on each situation. As regards accountability, the partners must risk all his personal assets, even those not invested in the business, because under the law of partnerships, the partners are liable for the debts of the business. This means that if either partner is unable to satisfy a pro rata claim against the association after it has fallen into bankruptcy, the other partners must take care of unsatisfied claims, making use of their personal assets if necessary .
The first three disadvantages (unlimited liability, the instability of the organization and the difficulty of transfer of ownership) are combined to form the fourth, the associations have difficulty in attracting substantial amounts of capital. This is not a particular problem of a slow-growing business, but if the company's products actually are successful and the company needs to obtain large amounts of capital to build upon their opportunities, their difficulty in attracting capital becomes a big problem .
Thus, companies like Hewlett-Packard and Apple Computer usually begin their lives as individuals or associations, but at some point are forced to become corporations.