LONG-RUN EQUILIBRIUM CONDITIONS: The long-run equilibrium of perfectly competitive industry generates six specific equilibrium conditions, including (1) economic efficiency (P = MC), (2) profit maximization (MR = MC), (3) perfect competition (MR = AR = P), (4) breakeven output (P = AR = ATC), (5) minimum production cost (MC = ATC), and (6) minimum efficient scale (MC = ATC = LRAC = LRMC).
Visit the GLOSS*arama
A business that is owned and operated by two or more people. The owners and the business are legally considered one and the same. As such, the owners receive any and all profit, incur any and all loss, and are responsible for any and all debts including those made by a partner. This creates what is termed unlimited liability. In that each partner is responsible for the actions of the others, partnerships tend to be relatively small, with only a handful of people involved. A partnership is one of the three basic forms of business organization. The other two are proprietorship and corporation. This form of business is common for professional-types, like lawyers, accountants, dentists, and physicians. A partnership exists when two or more people join together in a business venture, with each partner sharing responsibility for the operation of the business. The partners supply most of the resources, including labor, capital, land, and entrepreneurship. The shared responsibility translates into unlimited liability for the debts of the business. It can also mean that the partners divide up the tasks, with one responsible for production, another for sales, and third handling accounting.
Schrumpmeyer and SchrumpmeyerOne example of a partnership is the legal firm of Schrumpmeyer and Schrumpmeyer, Attorneys at Law, owned and operated by Sean Schrumpmeyer and Sally Schrumpmeyer. Sean and Sally share the decision-making responsibilities of Schrumpmeyer and Schrumpmeyer more or less equally. They mutually agree on the clients they represent, whom they hire as clerical workers, and what flavor of donuts to buy for a mid-morning snack.
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 ControlA key feature of a partnership is that ownership and control of the business rests jointly in the hands of the partners. While the partners own and control the business, this ownership and control, and thus the responsibility of the business, is shared jointly. The resources of the business are owned jointly by the partners. And the actions of one partner impact the welfare, well-being, and bank accounts of the other partners.
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 LiabilityComplete control means that the partners in a partnership also have unlimited liability. The partners are responsible for any and all debts of the business. In addition to the assets and wealth of the business, the personal assets and wealth of the partners can be used to pay off debts.
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 EssentialUnlimited liability makes partnerships an extremely risky business structure. Not only must each partner worry about the day-to-day problems of production, marketing, and accounting, but each must also worry about the other partner or partners. Each partner must place a great deal of trust in the others.
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 SharingQuestions of trust aside, partnerships have one important benefit over proprietorships. With each additional partner, the business gains access to additional resources. This makes it possible for partnerships to be larger than proprietorships.
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 TwoPartnership is one of three basic types of business organization. The other two are proprietorship and corporation.
- 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 VariationsWhile the traditional partnerships is one in which two or more partners share in the operation, profits, and liabilities of the business, variations of this standard have been developed over the years. Two notable variations are limited partnership and limited liability company.
- 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.
PARTNERSHIP, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2024. [Accessed: February 27, 2024].
Check Out These Related Terms...
| | | | | | | | | | | | | | | |
Or For A Little Background...
| | | | | | | | | |
And For Further Study...
| | | | | | | | |
Related Websites (Will Open in New Window)...
Back to the WEB*pedia
Today, you are likely to spend a great deal of time wandering around the downtown area wanting to buy either a remote controlled World War I bi-plane or a wall poster commemorating Thor Heyerdahl's Pacific crossing aboard the Kon-Tiki. Be on the lookout for poorly written technical manuals.
Your Complete Scope
This isn't me! What am I?
Sixty percent of big-firm executives said the cover letter is as important or more important than the resume itself when you're looking for a new job
"Believe and act as if it were impossible to fail."
-- Charles F. Kettering
Regional Trading Arrangement
Tell us what you think about AmosWEB. Like what you see? Have suggestions for improvements? Let us know. Click the User Feedback link.