Introduction :
Businessmen experience that the combination of more than one in business, bring out better and more efficient results.
If a person who has the ability and experience but does not have the required money can join and combine their skills and property in a venture and agree to share the results, it is referred to as partnership.
Essential features of partnership:
No of persons : Minimum two and maximum 20 members. (Note:- if business is of banking it must not exceed 10 members).
if it exceeds it becomes illegal association.
Agreement: There should be an agreement between the partners
Activity: Partners have to join to carry on some business.
Profits & loss: there should be sharing of both profit and loss.
Management: All partners should manage the firm
1.The law treats the partners and the firm as one legally. if any partner dies the firm gets dissolved. Each partner can enter into contracts on behalf of the firm and each of them can be used for the debts of the firm.
2. Liability of the partners is both joint and several and unlimited. if the firms assets are not sufficient enough to pay of its debts, the remaining amount can be recovered from any or all of the partners.
3. No partner can retire from the firm without the consent of the remaining partners.
Rules applicable in the absence of Partnership agreement:-
Partners share profit/loss equally
Interest on capital is not allowed and similarly no interest is charged on drawings.
Partners are not entitled for any salary or renumerations.
Partners giving loans to firm are entitled for 6%interest per annum.
Partnership books are kept at the place of business and every partner will have access besides the right to inspect and copy any of them.
Registration of firms:-
It is not compulsory to register partnership firms as per partnership act. BUT if a firm is not registered
1. Firm cannot file suit against third parties.
2. No partner can file suit against firm or other partners.
Usual Adjustments in Partnership Accounts:
Interest on Capital : As per partnership act no interest is paid on capitals of partners unless it is provided in deed.
Interest on drawings: Drawings are the amount of cash and goods drawn by the partners from the firm unless specified in deed.
Renumeration to partners: According to section 12b of the partnership act every partner is bound to attend diligently to his duties in the conduct of the business. As per section 13a no partner is entitled to receive renumeration for taking part in the business.However it may become necessary to pay renumeration to those partners who devote their full attention to the business.while others do not.
Partners capital accounts:-
The capitals of the partners are subject to adjustments if there is any profit or loss, or interest of capital and drawings etc.. those capital accounts are prepared separatley for each partner.
There are two methods of Maintaining capital accounts they are
1. Floating or Fluctuating capital method and
2. Fixed capital method
1.Floating or Fluctuating capital method: in this method all transactions such as capital contributed, profit, loss, salaries, balance of balance sheet etc are recorded under capital account for each of the partners separately, so capital at the end of the period will not be same as the begining of the period.
2. Fixed capital: here the capitals of partners are shown in capital account and other transactions are recorded in current account and drawings account, and all these accounts shown in balance sheet. Since capital account shows constant figure unless additional capital is introduced or existing capital is with drawn it is known as Fixed capital method.
Businessmen experience that the combination of more than one in business, bring out better and more efficient results.
If a person who has the ability and experience but does not have the required money can join and combine their skills and property in a venture and agree to share the results, it is referred to as partnership.
Essential features of partnership:
No of persons : Minimum two and maximum 20 members. (Note:- if business is of banking it must not exceed 10 members).
if it exceeds it becomes illegal association.
Agreement: There should be an agreement between the partners
Activity: Partners have to join to carry on some business.
Profits & loss: there should be sharing of both profit and loss.
Management: All partners should manage the firm
1.The law treats the partners and the firm as one legally. if any partner dies the firm gets dissolved. Each partner can enter into contracts on behalf of the firm and each of them can be used for the debts of the firm.
2. Liability of the partners is both joint and several and unlimited. if the firms assets are not sufficient enough to pay of its debts, the remaining amount can be recovered from any or all of the partners.
3. No partner can retire from the firm without the consent of the remaining partners.
Rules applicable in the absence of Partnership agreement:-
Partners share profit/loss equally
Interest on capital is not allowed and similarly no interest is charged on drawings.
Partners are not entitled for any salary or renumerations.
Partners giving loans to firm are entitled for 6%interest per annum.
Partnership books are kept at the place of business and every partner will have access besides the right to inspect and copy any of them.
Registration of firms:-
It is not compulsory to register partnership firms as per partnership act. BUT if a firm is not registered
1. Firm cannot file suit against third parties.
2. No partner can file suit against firm or other partners.
Usual Adjustments in Partnership Accounts:
Interest on Capital : As per partnership act no interest is paid on capitals of partners unless it is provided in deed.
Interest on drawings: Drawings are the amount of cash and goods drawn by the partners from the firm unless specified in deed.
Renumeration to partners: According to section 12b of the partnership act every partner is bound to attend diligently to his duties in the conduct of the business. As per section 13a no partner is entitled to receive renumeration for taking part in the business.However it may become necessary to pay renumeration to those partners who devote their full attention to the business.while others do not.
Partners capital accounts:-
The capitals of the partners are subject to adjustments if there is any profit or loss, or interest of capital and drawings etc.. those capital accounts are prepared separatley for each partner.
There are two methods of Maintaining capital accounts they are
1. Floating or Fluctuating capital method and
2. Fixed capital method
1.Floating or Fluctuating capital method: in this method all transactions such as capital contributed, profit, loss, salaries, balance of balance sheet etc are recorded under capital account for each of the partners separately, so capital at the end of the period will not be same as the begining of the period.
2. Fixed capital: here the capitals of partners are shown in capital account and other transactions are recorded in current account and drawings account, and all these accounts shown in balance sheet. Since capital account shows constant figure unless additional capital is introduced or existing capital is with drawn it is known as Fixed capital method.
