This section is from the book "Business Finance", by William Henry Lough. Also available from Amazon: Business Finance, A Practical Study of Financial Management in Private Business Concerns.
Fundamentally, there is no essential difference between the sole proprietorship and the partnership, except that in the second case a group of owners take the place of the individual owner. There may be any number of partners and among themselves they may have many different forms of agreement. The agreement must be, of course, between parties competent to contract. Partners are not necessarily equal, by any means, in respect to their investment of capital or as to their division of the income. Sometimes one partner receives a larger proportion of the income than corresponds to his investment of capital in order to compensate him for a special contribution that he may be in position to make to the business, such as valuable experience or connections, or unusual business ability. A partner may not desire to have much capital in the business or even to be known as in any way interested, in which case he may by agreement become a "dormant" or "sleeping" partner. Again, he may desire to limit his own liability to the amount which he invests, in which case he may become a "limited" partner.
There are certain forms of partnerships which are used for special or temporary purposes, such as the "syndicate," the "joint adventure," etc., but these are details that involve us in many technical questions and lead us outside the scope of this volume. In all these various forms, however, the-personal relationship of the owner of the capital to the management of the business is a strong element. It may be hidden or modified in part, but it is never absent.
Because of the personal element involved, the partnership is regarded as the proper form in which to organize such professional activities as those of lawyers, accountants, and engineers. In all these cases it may be necessary to bring together in one organization considerable capital and the talents of many different men. The product of this organization, however, is not some material thing, but a direct personal service; hence, the personal liability and personal relationship, which are characteristic of the partnership form, are desirable and should be retained. There are other lines of business in which it is desired to avoid the legal regulation which is applied to corporations, and for this reason the partnership form is preferred. This is particularly true of the banking business. Most concerns engaged in buying and selling securities, in underwriting, and the like, are not incorporated, but are organized as partnerships. There are a few large trading and manufacturing enterprises in the partnership form. Until recently, Arbuckle Brothers and the Baldwin Locomotive Works were still conducted as partnerships, and this is even yet true of Rogers, Peet and Company, of New York.