Question

Define a partnership. b) List four important matters, relevant to the accountant that may be included in the partnership deed.

Answer 1

Partnership

A partnership is a form of business where two or more people share ownership, as well as the responsibility for managing the company and the income or losses the business generates. That income is paid to partners, who then claim it on their personal tax returns – the business is not taxed separately, as corporations are, on its profits or losses.

There are three types of partnerships:

• General partnership
• Limited partnership
• Joint venture

General Partnership

In a general partnership, each partner shares equally in the workload, liability, and profits generated and paid out to the partners. All partners are actively involved in the business’s operations.

Limited Partnership

Limited partnerships allow outside investors to buy into a business but maintain limited liability and involvement, based on their contributions. This is a more complicated form of partnership, which also has more flexibility in terms of ownership and decision-making.

Joint Venture

Short-term projects or alliances that bring together multiple partners for a project are typically structured as joint ventures. If the venture performs well, it can be continued as a general partnership. Otherwise, it can be shuttered.

Partnership Deed

A partnership deed, also known as a partnership agreement, is a document that outlines in detail the rights and responsibilities of all parties to a business operation. It has the force of law and is designed to guide the partners in the conduct of the business. It is helpful in preventing disputes and disagreements over the role of each partner in the business and the benefits which are due to them.

Four important matters, relevant to the accountant that may be included in the partnership deed.

>Profit sharing ratio between the partners.

                    It is important thus the accountant want to distribute the share of profit to the each patner as per there profit sharing ratio

>Loans and advances from the partners and the rate of interest thereon.

           To make proper payment of their interest

>Drawings allowed to the partners and the rate of interest thereon

          To collect interest from the partner at right time

>Amount of salary and commission, if any, payable to the partners

         To pay salary and commission if any