Terms Beginning With 'p'


What is a partnership?

In business, a partnership is an arrangement where two or more persons share the profits according to agreements. Partners are collectively co-owners of the enterprise and also contribute to the capital of the business. 

Partners also share the management responsibilities of the firm. A partnership is essentially an agreement to advance the mutual interest of the partners. Partners in the agreement could involve businesses, Governments, individuals, schools, or a combination of any of these. 

Partnership laws in each jurisdiction govern the rules, regulations, and obligations of the partnership firms. Partners not only share profits but losses and liabilities as well. 

What are the advantages of a partnership?

Easier and fewer obligations

Partnership structure was designed to spur growth in small businesses. Unlike limited companies, a partnership structure tends to have lesser obligations like simpler accounting standards. 

In most jurisdictions, partnerships attract different tax structures, and the entity is not taxed, instead the income of partners is taxed. Companies are incorporated under company laws and have a plethora of obligations, but partnerships come with relatively lesser obligations. 

Sharing the booms and boons

In a sole proprietorship, capital is employed by a single person, who has all the obligations for the liabilities and is the owner of all assets.

Conversely, a partnership enables sharing capital deployment, asset, liabilities, losses, and profits. Partnership structure allows sharing roles and responsibilities in the business enterprise. 

Knowledge, experience, reach and skills

With many partners in a firm, it allows broadening the capability of the management decision and outcomes. Partnership firms also onboard new partners based on their needs. For instance, a law partnership could invite a new partner, who specialises in a practice lacking at the firm. 

Collective financial commitment 

Partners in a firm are invested in the business through the capital. Losses and profits are also shared on a share in the firm, which is usually based on the proportion of capital invested in the business. 

It also motivates the partners to remain committed to the firm since losses and profits would be shared as well.

What are the disadvantages of a partnership firm?

No separate legal entity

A partnership firm has no independent legal existence unless the agreement has a specific provision in place. When the partners of the firms leave or cease to be partners anymore, the firm is dissolved. In this way, the firms could be unstable and uncertain.


Since partnership firms are not taxed separately and the profits are shared by the partners that are taxed at individual income tax level, partners cannot retain the earnings.

Partnership firms do not provide tax planning opportunities compared to limited companies. Thus, making it tax inefficient for the partners.


Even if one partner has made significantly more efforts compared to other partners, the profits would be shared as per the partnership agreement. Profit and loss sharing could be good, but it may well turn out to be disastrous as well. 

Disagreement with partners

More number of partners in a firm increases the chances of higher level of disagreements among them. Since decisions are also bound to be consulted with each partner, the decision-making ability of the firm could be hampered in the event of disagreements among partners. 

What are the types of partnerships?

General Partnerships

General Partnerships are the most common partnership firms that exist in many jurisdictions. Small businesses often incorporate a General Partnership since it is the simplest partnership, which requires minimal formalities. 

Share of profits could be enlisted in the partnership agreement and is usually based on a similar proportion of the capital invested by the partners. At least one partner in GP has unlimited liabilities since a partnership is not a separate legal entity. 

In this way, partners will be held accountable if the firm enters bankruptcy and dues are supposed to be cleared by the partners. 

Limited Partnerships

Limited Partnerships allow one to have limited partners in the firm. LPs can have a mix of general partners and limited partners. It is incorporated to designate limited partners with specific responsibilities without bearing any significant liability. 

It can be the case that limited partners are not involved in the daily operations of the business and contribute on a consulting basis. Limited partners usually invest capital in the business and take a share of profit. They largely remain out of the decision-making roles.

Limited Liability Partnerships

Limited Liability Partnerships are a more complex type of partnerships. The structure allows partners to have limited liabilities along with limited scope on managerial decisions. These limits are often defined by the extent of a partner’s investment in the firm. 

Passive income refers to earnings obtained from sources such as property rented out, business held in partnership or other enterprise in which a person is not actively participating.

A holding company is a type of parent corporation that does not have any operating activities or other active business itself. Instead, a holding company owns assets, including limited liability companies, shares of stock in other firms, hedge funds, private equity funds, limited partnerships, public stocks, song rights, patents, trademarks, brand names etc.

What is an Annual report? A document that provides an extensive overview of the company’s financial and operational conditions to its shareholders, customers, employees, government and investors on a yearly basis is known as an annual report. Nowadays, annual reports are created by organisations as a marketing tool to attract the attention of donors, investors and shareholders and to highlight their brand in the open market. After the 1929 stock market crash, standardised annual reporting was made mandatory by lawmakers. These reports are utilised by the investment firms and individual investors to make investing decisions. What are the key components of an Annual Report? Traditionally, annual reports had a significant amount of text to give an overview of the company’s previous year’s performance. However, today’s annual reports contain graphics, visually appealing content and images to gain the attention of new investors. In today’s market, sustainability annual reports are also released to project the sustainable operations of the organisations.  The structure or chronology of annual reports differs from company to company, but as per the regulatory requirements, the majority of the annual reports contains the following sections: Information about the cooperation – The vision and mission statement are included in this section. Letter from the CEO – The letter generally highlights the information which will be of interest to shareholders. The section provides a brief summary of the company’s performance along with the achievements. Financial and operational highlights of the year – This section is dedicated to project the key achievement of the company in the past year such as awards, goals accomplished and special (corporate social responsibility) initiatives undertaken by the firm. Financial statements – It is the critical element of an annual report as decisions related to investment are based on the measurable data stated in the form of the balance sheet, income statement and cash flow statements. Furthermore, the financial statement may include the graphical presentation of the quantitative data and allowing comparison with the past year’s performance. The appendix and footnotes give the opportunity to further break down the data.   Plan for future growth – A report also incorporates the future objectives and goals of a corporation to gain the trust of shareholders. It also allows shareholders to acknowledge the current status of the organisations in respect of the competing firms. Moreover, the strategy to accomplish the mentioned goal is also stated in the annual reports. Copyright © 2021 Kalkine Media Pty Ltd Who are the readers of Annual Reports? The reports are made publicly available through the organisational websites of publishing in the local newspaper to cater to the need of stakeholders, that is, shareholders, customers, potential investors (investment firms, individual investors, partnership firms, organisations looking for partnership, mergers and acquisition or collaboration) and employees. Protentional investors – The annual reports give investors a better understanding of the current and future position of the organisation through the combination of qualitative and quantitative data. On the basis of personal and technological interpretations, investment decisions are made. Employees – In the majority of the firms, employees are the shareholders of the firm, so the annual report helps the employees to evaluate different investment options in the firm. Additionally, reports are utilised by employees to investigate the future focus of the firm. Customers – In the present circumstances, consumers are aware of the products and services they buy. According to a survey by Accenture, 40% of the participants stated that they would not pay for a brand that is socially and ethically irresponsible Therefore, customers go through annual reports to determine the quality of the company’s suppliers. Also, the report gives a fair idea about the current status as well as the future plans of the firm. This leads to generation of new investors. Why should investors read an annual report before taking investment decisions? For investment decisions, investors should read the 10K fillings by the firms which either submitted separately to the security exchange commission or combined with the annual report. 10k filling report firstly provides detail about the company, then the risk factors, legal issues (if any), the financial data, director’s report and lastly the management’s discussion. The director’s report should be the first component of analysis as it gives a quick view of the company’s performance, theme, goals, returns to name a few. The analysis of the director’s report determines the attractiveness of the industry. Management’s discussion is one of the crucial components as it describes the views of the person who is at the top of the management and takes major decisions. The section focuses on the business strategy, emerging competition, game plan to name a few. When the management decision is compared with the quantitative data, the content validity of organizational data can be ensured. Financial data incorporates both financial highlights and financial statements. It allows assessment of the company’s performance over the past few years. It projects whether the balance sheet has become strong or weak from last year. The cash flow statements describe the sustainability and health of the business. The disparity in the middle of the income statement and cash flow statement can raise an alarm. For example, if the cash flow is negative and the net income is reported, then it is a red flag. Investors should look for the risk in the firm as it impacts the organization’s long-term performance and in a few cases the firm’s income. The legal proceedings section describes the litigation activities and the legal risks. The corporate governance indicates the actions taken by the firm to align the interest of the shareholders with organisation goals. The section is crucial as positive relationship has been observed between corporate governance and value of the shares.   Information on company’s share discloses the average trading volume and average trading price. Furthermore, the shift in the ownership of the shares is also incorporated. Red flags are raised in case the stake of promoters reduces significantly. Copyright © 2021 Kalkine Media Pty Ltd

What is the Russell 2000 index? The Russel 2000 index is an index measuring the performance of approximately 2,000 small cap American companies. The companies forming the index are weighted based on their market capitalisation. Consequently, the weights attached to the various component firms change depending on the market capitalisation held by them. This index is operated by FTSE Russell of the London Stock Exchange Group. It was founded by Frank Russell company in 1984. The index is mostly concerned with small cap companies and is also sometimes referred to as “Russell 2K”. It is a part of a broader index called Russell 3000, which also includes the Russell 1000, an index made up of the top 1000 American stocks. Additionally, Russell 3000 makes up for about 98% of the entire investable stock market in the Unites States. Russell 2000 makes up for almost 2/3rds of all American stocks in the market. How does the index work? The average weighted market capitalisation of a company included in the Russell 2000 index was USD 3.76 billion as of February 28, 2021. This index alone accounts for less than 10% of the capitalisation of the US stock market. Russell 2000 excludes stocks that are trading below USD 1 along with pink sheet and bulletin board stocks. Close-end mutual funds, limited partnerships, royalty trusts, foreign stocks and American Depository Receipts are also not part of the index. The index is reconstituted every May as stocks can quickly change categories from small cap to medium cap. Whereas, initial public offerings, if found eligible, are added quarterly. There are various permutations of the Russell 2000 index available in the market. These permutations are formed by taking factors other than market capitalisation as the distinguishing factor. For instance, the Russell 2000 Value index is used to measure the performance of Russell 2000 companies having a lower price-to-book ratio as well as lower forecasted growth values. Similarly, Russell 2000 Growth index measures the performance of those companies in the index which have a higher price-to-book ratio as well as higher forecasted growth value. Which companies form the Russel 2000? As of February 28, 2021, the top 10 index constituents include: Plug Power Inc (Industry: Energy) Penn National Gaming Inc. (Industry: Consumer Discretionary) Caesars Entertainment In (Industry: Consumer Discretionary) Novavax Inc (Industry: Health Care) Darling Ingredients Inc (Consumer Staples) Lithia Motors Inc (Industry: Consumer Discretionary) Sunrun Inc (Industry: Utilities) Deckers Outdoor Corp (Industry: Consumer Discretionary) Ultragenyx Pharma (Industry: Health Care) Builders Firstsource Inc (Industry: Industrials) Healthcare sector forms a large part of the index, followed closely by consumer discretionary and industrials sectors. Consumer staples and telecommunications sectors form the lowest share of the index. The largest market capitalisation held within the index was USD 23.46 billion as of February 28,2021. While the same figure for Russell 3000 was significantly higher at USD 2073.854 billion. The index is rebalanced every year on the last trading day of June. This rebalancing can alter the market by a great degree. The funds dependent on the index as well as some small-cap funds that mirror the movement of the index load up on the new entrants to the index while drop the stocks that leave the index. Why is the Russell 2000 important? The Russell 2000 is a popular and widely accepted benchmark used to gauge the strength of the US stock market. The index may not be as popular as its counterparts like the Dow Jones Industrial Average Index, however it is still a good tracker of the smaller companies in the US stock markets. The index is very much inclusive and is much broader than various other indexes in the market. Investors also compare mutual funds’ performance to Russell 2000 as it a broad index and gives a fairer depiction of the entire market. Most indices fail to cover a large proportion of the market, however, Russell 2000 it covers many stocks in a single index. This makes the index less biased and less stock specific. What are the limitations of the Russell 2000 index? Despite its coverage of the smaller cap stocks, Russell 2000 does not include micro-cap stocks in its calculation. There are hundreds of such companies deemed too small to be included in the index. These micro-cap companies include some of the fastest growing stocks which are not factored into the index. Additionally, only a few sectors have come to dominate the index. The index sees heavy contribution from the financial and healthcare sectors. Thus, this aspect may weigh on stocks belonging to other sectors like communications, telecommunication, etc. How can one invest in the index? To invest in the index, one need not buy all 2000 stocks that the Russell 2000 is comprised of. Investors can directly trade in the index through a mutual fund or exchange-traded fund that shadows the index. Examples of the same include iShares Russell 2000 ETF, Rydex Russell 2000 Fund, Rydex Inverse Russell 2000 Strategy Fund, USAA Small Cap Stock Fund, etc. How is the Russell 2000 different from the Dow Jones Industrial Average Index and the S&P 500 Index? Both these indexes are different from the Russell 2000 based on their composition and usage. Here are some broad differences: Dow Jones Industrial Average Index: The Dow is an exclusive index made up of the top 30 blue chip stocks. This makes the index quite selective and less depictive of the entire market’s movements. In this the company with the highest dollar stock has the largest impact on the index. S&P 500: This index includes the largest 500 companies that are publicly traded. These stocks fall midway between blue chip stocks and the stocks standing in the medium to low cap category. The index covers a sizeable part of the market and includes the most well performing stocks as well.

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