Fundamentals Partnership Firm

Partnership is the relation between persons who have agreed to share the profits of a business carried on
by all or any of them acting for all.
Section 4 of partnership act, 1932
a) Minimum partner 2
b) Maximum partner 50 as per rule 10 of the companies rules, 2014
Essential condition of Partnership
Business + Profits + Mutual agency
a) Two or more persons
b) Agreement (Oral or written)
c) Lawful business (Existence of business & profit motive)
d) Sharing of profits
e) Principle and Agent relationship
f) No separate existence (legal point of View)
g) Business can be carried on by all or any one of them acting for all
Rights of a partner
a) Right to participate in management
b) Right to inspect books of account and have a copy of it
c) Right to share profits or losses
d) Right to received interest on his/her loan to the firm @6% p.a. (Charge)
e) A partner has the right not to allow the admission of a new partner
f) After giving proper notice, a partner has right to retire from the firm
Partnership Deed:-
A partnership deed is an agreement between the partners of a firm that contains the terms and conditions
of partnership.
a) It is not mandatory.
b) It also called “Articles of partnership”
It contains the following points
a) Name and Address of the firm & partners.
b) Nature of business, capital contribution, profit sharing ratio, Accounting period, Duration of
partnership & settlement of Disputes.
c) Interest on capital, salaries to partners, commission, etc.
d) Rights and Duties of Partners
IMPORTANT POINTS TO BE REMEMBERED
a) In partnership the liability of all partners are unlimited
b) Registration of Partnership firm is not Compulsory.
c) Partnership is separate business entity from Accounting point of view

LLP : Limited Liability Partnership (LLP ACT 2008)

Here liability of partners are limited
(Mix of Partnership and Company)
Dr Profit & Loss Appropriation A/c
Cr
Particular Amount($) Particular
To Interest on Capital: By Profit and Loss A/c (Net Profit) XXX
A XXX By Interest on Drawings: XXX
B XXX A XXX
To Partner’s Salary XXX B XXX
To Partner’s Commission XXX XXX
 Fundamentals Partnership Firm
To Reserve XXX

To Profit Transferred to:

A’s Capital/Current A/C XXX
B’s Capital/Current A/C XXX XXX
XXX

Total XXX Total

In the absence of partnership deed (Partnership Act provisions are applicable)

a) Profit sharing ratio will equal
b) No interest on capital, no salary, no interest on drawings, etc.
c) Interest on (partners loan to firm) @6% p.a.
d) Interest on (firm loans to Partners) – NO INTEREST It is a charge against profit hence provided
even in case of losses
e) Interest on capital & salary if given in partnership deed then it will provided but only out of profits.
Charge against profits & Appropriation of profits

MINOR DECISION AND MAJOR DECISION

Salary and Commission to partners

Fundamentals Partnership Firm
Practical problems

Methods of partners capital Account.

GUARANTEE OF PROFITS TO A PARTNER