Accountants' Handbook Volume Two: Special Industries and Special Topics, Eleventh Edition

Chapter 42. PARTNERSHIPS AND JOINT VENTURES

Gerard L. Yarnall, CPA

Deloitte & Touche, LLP

Ronald J. Patten, PhD, CPA

DePaul University

The editors wish to acknowledge the previous contribution to this chapter by George N. Dietz, CPA, American Institute of Certified Public Accountants.

NATURE AND ORGANIZATION OF PARTNERSHIP ENTITY

(a) DEFINITION OF PARTNERSHIP.

The Uniform Partnership Act (UPA), which has been adopted by most of the states, defines a partnership as an association of two or more persons who contribute money, property, or services to carry on as co-owners a business for profit.

A partnership may be general or limited. In the general partnership, each partner may be held personally responsible for all the firm's debts, whereas in the limited partnership, the liability of certain partners is limited to their respective contributions to the capital of the firm. The limited partnership is composed of a general partner and limited partners with the latter playing no role in the management of the business. Limited partnerships are discussed in Section 42.6.

While partnerships remain popular as a form of business organization, they are not as commonly used as they once were. The Tax Reform Act of 1986 has served to dampen the attractiveness of limited partnerships as tax shelters. Similarly, new accounting standards that are more prone to require consolidation of investees have made the use of partnerships and joint venture for purposes such as research and development less advantageous. ...