BASICS OF PARTNERSHIP

ACCOUNTING FOR PARTNERSHIP FIRMS

LESSON - 1

BASICS OF PARTNERSHIP

MEANING OF PARTNERSHIP  

            When two or more persons mutually agree for a business activity it can be said as partnership. These people are called as partners and the business will be called as a partnership firm.

DEFINITION OF PARTNERSHIP - as per the Indian Partnership Act, 1932

" Partnership is the relation between persons who have agreed to share the profits of a business carried on by all or any one of them acting for all. "

PARTNERSHIP QUALITIES ARE :

                                                                             

- There should be two are more persons

    According to the Indian Contract Act - 1872 few people can't be a partner

    . a minor

    . an unsound person

    . a person disqualified by the law etc

- The partners will agree among themselves and prepare a agreement called Partnership Deed

- The partners should carry a lawful business and there should be a motive of profit

- Sharing of the firm's profit as well as its losses as agreed

- Partnership can be operated by one person representing the other partners

A PARTNER IS PROVIDED WITH CERTAIN RIGHTS IN PARTNERSHIP

- To participate in the management

- To share profits and losses of the firm

- To retire from the firm after a notice

- To take emergency decisions on behalf of the other partners

- To inspect the accounts of the firm

- To receive interest for any of his personal money provided for the firm

- To agree and disagree with new partners admission

PARTNERSHIP DEED

It is the mutual agreement between the partners. They decide the terms and conditions of their partnership in advance as it helps to avoid the conflicts later.

SOME MAJOR CONTENTS OF PARTNERSHIP DEED ARE :

- capital contributions

- Interest on the capital contributed

- Interest on drawings

- Interest on partners loan ( if any )

- Profit and losses sharing ratio

- Remuneration to a partner

- Valuation of goodwill of the firm

- Valuation of assets and liabilities

- Accounting period 

- Settlement of accounts 

- Settlement of disputes ( if any )

As partnership deed is not mandatory for a partnership firm, so in case if partners fail to prepare the partnership deed among them then INDIAN PARTNERSHIP ACT will apply.

THE INDIAN PARTNERSHIP ACT 1932 provides guidelines for the major common disputes among the partners.

- for sharing profits and losses	to be shared equally
- for interest on capital	not to be paid
- for interest on drawings	not to be charged
- for remuneration to partners	not to be paid
- for interest on partners loan	pay 6% annually *