The greatest people may sometimes overshoot themselves, but their very mistakes are so many lessons of instruction to teach others the art of over-reaching. The prestigious New York law firm of Kaye, Scholer, Fierman, Hays, and Handler, accused of withholding damaging information during a federal investigation of its client, Lincoln Savings and Loan, settled out of court for $41 million. The firm’s liability insurance covered only $25 million of the total $41 million. Thus, its 109 partners had to pay the remaining $16 million out of their own pockets. In a recent year, court damage awards in malpractice suits against American accountants and attorneys was close to $1 billion. If the partnership contract does not specify to the contrary, all net income or net loss is shared equally by the partners. Why do people choose partnerships? One major advantage of doing so is that the skills and resources of two or more individuals can be combined. In addition, a partnership does not have to contend with bureaucracy that a corporation must face. That is, a partnership is easily formed and is relatively free from government regulations and restrictions. Decisions can be made more quickly on substantive matters affecting their firm, whereas in a corporation, formal meetings with the board of the directors are often needed.

 On the other hand, partnerships also have some major disadvantages: mutual agency, limited life, and unlimited liability. Unlimited liability is particularly troublesome to many individuals, because they may lose not only their initial investment but also their personal assets, if those assets are needed to pay partnership creditors. As a result, partnerships often find it difficult to obtain large amounts of investment capital. That is one reason why the largest business enterprises in the United States are corporations, not partnerships. With surprising speed, states are creating two new forms of business organizations that are being adopted by many small companies. Known as limited liability companies (LLCs) and limited liability partnerships (LLPs), they combine the advantage of partnerships and corporations by shielding owners from personal liability while taxing income at the individual level. The LLC structure is an option for many sole proprietorships as well. Partners in professional firms can and do make substantial incomes. For example, in one large international public accounting firm, the average earnings of all partners in recent years were over $400,000.00, and the individual earnings of the five most highly compensated partners was over $1 million.

 Note, however, that the compensation of partners in most large partnerships differs in both form and substance from the compensation of a corporate executive. Partners are not guaranteed an annual salary. Compensation depends entirely on each year’s operating results. Substantial investment is required of each partner. This capital is at risk for the partner’s entire career—often 25-30 years—without an established return. Upon leaving, it is repayable without adjustment for inflation or appreciation value. Before we act, we must consider not only the misery produced, but the happiness precluded by our measures. Inequality among mankind is a foe to happiness. Satan uses his power to promote immoral, harmful practices. When we reject such practices, some friends and relatives may ridicule or oppose us. So we face a choice. Will we associate with people who love God? Will we obey his wise and loving laws? God’s love for mankind guarantees that evil and suffering will end. Those who demonstrate that they believe this will enjoy life on Earth forever. It is only a poor sort of happiness that could ever come by caring very much about our own narrow pleasures. A well-developed partnership agreement reduces ethical conflict among partners because it specifies in clear and concise language the process by which ethical and legal problems will be resolved. This issue is especially significant when the partnership experiences financial distress. Our senses are not dupes.

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