Partnership Businesss And Partnership Agreement

PARTNERSHIP BUSINESS

Introduction

The traditional form of business organization is sole proprietary system. Because of weakness in this form (i.e one man talent, capacity, knowledge, skill, qualification, experience and the like), the partnership form of business organization commences in the world of business. In case of sole proprietorship, single person is absolutely responsible for all affairs of the business but there is joint responsibility when talking about partnership form of business organization.


Partnership business is a business having not less than two members, who contributes money or money's worth to a common stock which is known as partner's capital. The important elements of the partnership could be laid down as follows:

* A partnership is the outcome of a valid agreement between or among partners.
* The agreement must indicate about the sharing of profits and losses of the firm.
* The business of the firm must be carried on by all or any of the partner acting for all partners.

PARTNERSHIP AGREEMENT

Since the partnership is the outcome of a valid agreement between or among partners, so it is the highway to drive the partnership named vehicle without any dispute in the days to come. The partnership agreement should be in black and white because of its formal existence, makes the highway clear and distinct. But there is no any mandatory clause available in the partnership act regarding the existence of partnership agreement in written form.

If the written agreement is not available a verbal agreement could be handy one to operate business of the firm. Whenever all the terms and conditions of operating partnership business is codified and listed in the form of written document. It becomes the deed of the partnership business. A partnership deed contains the following:

1. Name, nature and address of partnership business in detail where the permanent address of all the partners is included besides the address of the business firm.

2. The total capital of the firm, the proportion of such capital who is going ti contribute what? as well as the duration of partnership if the case concerned.

3. It should contain the ratio at what the profits and losses would be shared and the rate of interest entitled on contributed capital as well as interest payable rate in case of drawings.

4. Amount of salaries, commission and other allowances if any payable to partners followed by the amount which is available for drawings in anticipation to earned profits of the firm for private expenses.

5. Loans and advances by partners and the rate of interest there on followed by rights and duties of all the partners.

6. The nature of capital either fixed or fluctuating followed by procedure of maintaining books of account in the case of valuation of goodwill, admission, retirement, death and dissolution of partnership business.

7. The method of finding out the amount due to the retiring/the representative of a deceased partner.

8. To settle the dispute among the partners the arbitration clause, if any.

Accounting For Partnership Firm 

1. Fixed Capital Account Of Partners

This is one of the way of keeping partners contribution i.e. capital in the books of the firm. The main aim of maintaining fixed capital accounts of partners is to show the amount of original contribution of partners throughout whole year on a constant figure.

 Under this method, Capital Accounts are maintained. One of which shows the original capital of the partners without any change throughout the year and another account is opened to record the transactions between the partners and the firm, that is, salary to partners, commission to partners, bonus to partners, interest on capital and drawings made by the partners and so as like in the partners current account.

The capital account of partners showing the original capital could be changed when there is a change in the constitution or when a partner draws money from the business against her/his capital. 

2. Fluctuating Capital Account Of Partners

Under this method of keeping partners' capital account only one capital account of partners is opened. This account will record not only the original capital contribution but also the transaction between the partners and the firm. It includes partners drawings, commission, interest on capital, bonus, salary to partners and so on as the case may be. 

This account is fluctuating whenever there is a presence of any transaction influencing the concerned account. Whenever there is a system of fluctuating capital account no maximum limit can be put on the partners drawings as is maintained in the fixed capital account system.