Final answer:
Partnerships are attractive for business due to their easy setup, straightforward management, tax advantages, and ability to raise capital. They also offer flexibility in defining partner roles and facilitate resource pooling and shared expertise among partners. However, partners share liabilities and must navigate changes in partnership structure over time.
Step-by-step explanation:
Partnerships are a popular legal form for businesses due to several key factors. First, they are easy to start up with a simple partnership agreement and have a management structure that's typically straightforward to handle. Second, the flexibility of defining specific aspects in the partnership agreement means that relationships among partners and business operations can be closely tailored to the needs of the business. This customization aids in clarity and efficiency.
Additionally, partnerships do not incur special taxes; instead, each partner pays taxes on their share of the income, which simplifies the tax process. The ability to attract investors more readily than a sole proprietorship can be attributed to the combination of skills and resources provided by multiple partners, and the ease of raising capital due to the aggregate assets contributed by those partners.
Moreover, partnerships can hire and benefit from additional employees, which further contributes to their growth potential. They also allow partners to share responsibility and risks while capitalizing on the range of expertise and decision-making capabilities each partner brings. Despite these advantages, partners must consider the shared liabilities for each other’s actions, the possible changes in the partnership’s configuration due to the departure or death of a partner, and the potential limit on the partnership’s life span.