Partners = Employees ????

Discussion in 'Business Operations' started by LoneStarLawn, Apr 5, 2001.

  1. LoneStarLawn

    LoneStarLawn LawnSite Bronze Member
    Messages: 1,415

    My partner does not believe me about something so I need the help of you all to convince him. In a general partnership are the partners considered "employees" since the busines is not a seperate entity?
  2. John Allin

    John Allin LawnSite Bronze Member
    Messages: 1,488

    According to the 4th Edition of "Understanding Business" published by Irwin and written/edited by Nickels/McHugh/McHugh (college professors in Business)a general partners income is the income from the business and the "profit" is taxed as personal income. Thus, technically general partners are not "employees" from a taxation standpoint. In some states Workmans Compensation is not necessary for "owners" of the business - which includes General Partners. Many of the 'tests' for general partnerships are the same as for Sole Proprietorships, such as the length of life of the partnership terminates upon death or withdrawal of a partner, financial resources are generally the same as sole props, the risk of losses are the same for general partnerships, limited partnerships and sole propietorships.

    The three key elements of a general partnership are common ownership, shared profits & losses, and the right ot participate in managing the operations of the business (a direct quote from the book mentioned above).

    What are the main differences between general and limited partners?? General partners are the owners (partners) who have unlimited liability and are active in managing the company. Limited partners are owners (partners) who have limited liability and are not active in the company.

    What does unlimited liability mean?? Unlimited liability means that sole properietors and general partners must pay all debts and damages caused by their business. They may have to sell their houses, cars, or other personal possessions to pay business debts.

    What does limited liability mean?? Limited liability means that corporate owners (stockholders) and limited partners are responsible for losses only up to the amount they invest. Their other personal property isn't at risk.

    What are the advantages and disadvantages of partnerships?? Advantages include more financial resources, shared management and pooled knowledge and (usually) longer survival than a sole proprietorship. Disadvantages include unlimited liability, division of profits, disagreements amongst partners and difficulty in termination.

    So... from a taxation and liability standpoint - no. General Partners are not employees. Employees have no risk, or are only at risk for what they have invested (in a corporation).

    Hope this helps. Sorry it's so long.

  3. John Allin

    John Allin LawnSite Bronze Member
    Messages: 1,488

    Stumbled across this following info....

    In "Hiring Independent Contractors - the employers legal guide" published by Nolo Publishing and written by Attorney Stephen Fishman... in the section on "Planning to Avoid Government Audits" under partnerships is says....

    "Partners are neither employees or Independent Contractors of their partnership; they are self-employed business owners. A partnership does not pay FICA and FUTA taxes on partners' income, nor does it withhold income tax. Like sole properietors, partners pay their own FICA taxes."

    An example is given......

    "Brenda, Dave and Mike start their own computer consulting business. They form a partnership in which all three are partners. For tax purposes, their lives are pretty much the same as if they were sole proprietors. Each partner must pay his or her own FICA and FUTA taxes, and each must report his or her share of partnership income and losses on an individual tax return. Brenda, Dave and Mike are not employees of their partnership; each is a business owner."

    Hope this helps end the arguement.....
  4. LoneStarLawn

    LoneStarLawn LawnSite Bronze Member
    Messages: 1,415

    I guess what I was getting at is do we need to pay unemployment tax though we have no employees...
  5. John Allin

    John Allin LawnSite Bronze Member
    Messages: 1,488

    That would come under the State of Texas jurisdiction. The books I have are not that specific for states. It IS possible that you may have to pay unemployment taxes, but unlikely. I'll dig a little deeper tomorrow and see what I can find.
  6. John Allin

    John Allin LawnSite Bronze Member
    Messages: 1,488

    According to Attorney Stephen Fishman, in his book "Hiring Independent Contractors", Chapter 9, page 2....

    "Unemployment Compensation is only for employees....."

    Since General Partners are not classified as 'employees', they are treated the same as "sole proprietors" as has been previously proven (see previous posts).

    For Unemployment Compensation the State of Texas's "test" is known as "common law test". This means that they use the 'common law' test to determine whether a worker is an employee or not. Under this test, a worker is an employee if the person for whom he or she works has the right to direct and control how the owrk is performed, both as to the final results, and as to the details of when, where and how the work is to be done. This is the same test that the IRS uses to determine if a worker is an employee for federal unemployment tax (FUTA) purposes, although not all states use exactly the same 20 factors to measure control as does the IRS.

    Since "Partners" are not employees (see first post above) of the partnership and a partnership does not pay FUTA and FICA taxes on partnership income - then it is reasonable to assume that your partnership would not need to pay unemployment tax because you have no employees (as defined by the IRS and the State Department of Employment Security).

    This should end the arguement - although, as should be noted, I'm not a lawyer and am just recycling information that I have at my disposal in the books that I have in front of me.

  7. LoneStarLawn

    LoneStarLawn LawnSite Bronze Member
    Messages: 1,415

    I appreciate it John...You proved my point and since someone else addressed it besides me my partner will now understand that I was correct.
  8. yuliamathew

    yuliamathew LawnSite Member
    from LONDON
    Messages: 1

    Well friends, I am a trader of textiles, maintaining a good balance in my savings account and have a good credit history of more than one year. I am going to apply for a lot of credit cards as well as personal loans. What general precautions should be taken so that I may be able to get maximum number of credit cards and loans with good credit limits? How to get more and more credit cards and personal loans with bigger credit limits?
  9. Az Gardener

    Az Gardener LawnSite Gold Member
    Messages: 3,899

    Welcome to lawn site. Use the search feature and enter "business credit can be easy" there is a very long thread that outlines how to go about obtaining business credit and many of our members experiences going through the process.
  10. marthanmike1959

    marthanmike1959 LawnSite Member
    Messages: 63

    I have an idea how about no credit cards and no lines of credit.Play with snakes and your gonna get bit.

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