Schrumpmeyer and Schrumpmeyer

More to the point, they both share ownership of the land, building, equipment, and all other assorted resources used to provide legal services. They both provide their labor for the operation of the business. And, when the month is over, they share any profit earned (or any loss incurred).

Joint Control

If, for example, Sean Schrumpmeyer wants to use business profits to buy a company jet, he really should consult with his partner, Sally Schrumpmeyer. The profits after all belong to her, as well. And the resulting company plane is also jointly owned by her.

This joint ownership, control, and decision-making makes a partnership somewhat more complex and complicated that a owner-operated proprietorship. However, it is likely to be less involved that a corporation with complex administrative layers of authority and conflicting goals.

A Lot of Liability

In the Schrumpmeyer and Schrumpmeyer law firm, each partner is responsible for the actions of the other. As it turns out, Sean is a bit irresponsible. He tends to order unneeded and overpriced office supplies. He is also prone to take extended "fact-finding" trips to tropical resorts--at the firm's expense. These expenses, while incurred by Sean, are shared equally by Sean AND Sally. When Sean takes a vacation (oops... fact-finding trip) to Hawaii, then Sally ends up paying her share.

To make matters worse, Sean is facing a sizeable legal malpractice suit based on his recent defense of a serial killer. Should he lose this $100 million lawsuit, then Sean and Sally are BOTH liable. This liability not only extends to any and ALL of Sean's assets, including those totally unrelated to the law firm, but also to any and ALL of Sally's personal assets. In fact, if Sean comes up with only $30 million, then Sally is liable for the remaining $70 million.

Trust is Essential

For example, Sean Schrumpmeyer could drain the company bank account prior to a "fact finding trip" to a tropical resort... where he decides to stay for the rest of his life. If so, Sally loses out.

The possibility of this occurring in a partnership means that each partner must TRUST that the other partners will NOT engage in such an activity. As such, partnerships are probably best established between two or more people who are well acquainted, such as close friends or family members. In fact, one of the most common examples of a legal partnership is marriage. As a general rule, the husband and wife share legal ownership of the family assets.

Specialized Sharing

This also provides access to specialized skills. In a proprietorship, the owner does everything. A proprietor is the president of the business, the production manager, the marketing director, the accountant, the clerical staff, and, well any other job that needs to be done.

With a partnership, however, each partner can be skilled in a particular area. One partner can be the production manager, another the marketing director, and a third the accountant. Such division of labor enables specialization and more efficient production.

The Other Two

• Proprietorship: A business owned and operated by one person. The owner and the business are legally considered one and the same. As such, the owner receives any and all profit and has what is termed unlimited liability. With unlimited liability, the owner is held personally responsible for any and all debts of the business. While a large number of businesses in the economy are proprietorships, they tend to be relatively small.


• Corporation: A business established through ownership shares (or corporate stock). A corporation is considered a distinct legal person, that can be sued, forced to pay taxes, etc., comparable a human person. Unlike proprietorships and partnerships, a corporation exists separately from its owners. As such, the owners have limited liability. Owners cannot be held personally responsible for corporate debts. The owners can only lose the value of their ownership shares, but no more.

Partnership Variations

• Limited Partnership: A partnership in which at least one of the partners has limited liability. This differs from regular partnerships in which each partner has unlimited liability. The limited partnership legal structure was created to provide liability protection to "partners" seeking investment opportunities, who do not want to participate in the actual management of the firm. While these limited partners are very much like corporation shareholders, the difference is that at least one partner must have unlimited liability.


• Limited Liability Company: A firm that operates very much like a partnership, but in which each owner has limited liability. The advantage of a limited liability company, over a limited partnership, is that every owner has limited liability. It also has advantages over other organizations in that very few restrictions exist on who can be an owner.