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In: Accounting

Why would an existing partnership allow you to enter the partnership and give you a capital...

Why would an existing partnership allow you to enter the partnership and give you a capital balance that is more than the investment that you will be making into the partnership ( bonus to the new partner)? What do you believe would be some of the specific reasons?

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Expert Solution

Sometimes the existing partners’ decide to convert themselves into a sleeping or dormant partner. The reason behind this is they are no more interested in taking active participation in the business and want a fixed salary or commission. This is happens when the business is not performing well and the profits are low. In such scenario, they will offer more capital balance to the new partner so that new partner gets bonus in terms of capital balance and a high share of profit. While the existing partner are more interested in their fixed salary as the profit is low. The new partner has to face the difficulties and challenges of running a poor performing business and getting a high share from low amount of profit.

Please give likes for the work. Thanks & Regards.

ekkarill92 answered 2 years ago
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