What is Partnership?

A partnership is a kind of business where a formal agreement between two or more people is made
and agreed to be the co-owners, distribute responsibilities for running an organization and share the
income or losses that the business generates.
In India, all the aspects and functions of the partnership are administered under ‘The Indian
Partnership Act 1932’. This specific law explains that partnership is an association between two or
more individuals or parties who have accepted to share the profits generated from the business
under the supervision of all the members or behalf of other members.

Advantages
To do a thorough analysis of the advantages and disadvantages of a partnership, start
by looking at all the possible advantages that might apply to your situation. A
partnership may offer many benefits for your particular business.

1. Bridging the Gap in Expertise and Knowledge

Partnering with someone can give you access to a wider range of expertise for different
parts of your business. A good partner may also bring knowledge and experience you
may be lacking, or complementary skills to help you grow the business.

For example, you may be great at generating new ideas, but not so good at selling your
ideas. You may be a technology whiz but a fish out of water when it comes to building
relationships and taking care of the operations side. That's where a partner with skill
and acumen can step in and fill those gaps. This may be one of your first considerations
when you examine the advantages and disadvantages of a partnership.

2. More Cash

A prospective partner can bring an infusion of cash into the business. The person may
also have more strategic connections than you do. This may help your company attract
potential investors and raise more capital to grow your business.

The right business partner may also enhance your ability to borrow money to finance
the growth of the business. It helps to keep these money issues in mind as part of the
criteria in evaluating a potential partner.

3. Cost Savings

Having a business partner would allow you to share the financial burden for expenses
and capital expenditures needed to run the business. This could result in more
substantial savings than by going it alone.
4. More Business Opportunities

One of the advantages of having a business partner is sharing the labor. Having a
partner can not only make you more productive, but it may afford you the ease and
flexibility to pursue more business opportunities. It might even eliminate the downside of
opportunity costs.

Opportunity costs are potential advantages or business opportunities that you may be
forced to let go while you pursue other avenues. After all, as a one-person band, you
have to decide where you choose to focus your time and talents. A partner who shares
in the labor may free up time to explore more opportunities that come your way.

5. Better Work/Life Balance

By sharing the labor, a partner may also lighten the load. It may allow you to take time
off when needed, knowing that there's a trusted person to hold the fort. This can have a
positive impact on your personal life.

6. Moral Support

Everyone needs to be able to bounce off ideas or debrief on important issues. And we
may need moral support when we encounter setbacks or have to cope with work and
everyday frustrations.

Ask yourself what growth goals can a partnership help you achieve that you could not do alone.

At other times, it's simply the need to celebrate after having achieved a goal, or even
the need to vent from time to time. Avenues for doing this may not be so readily
available to a solopreneur or a small-business owner. Running a business on your own
can be lonely. A trusted partner can be a valued business companion.

7. New Perspective

It's easy to have blind spots about the way we conduct our business. A partnership can
bring in a set of new eyes that can help us spot what we may have missed. It may help
us adopt a new perspective or gain a different outlook about what we do, who we deal
with, what markets we pursue and even how we price our products and services.

A partner can inspire us and even move us from apathy, or the status quo, to the
exhilaration of exploring new possibilities. We cannot attach a price on everything and
inspiration is one of these intangibles that may be priceless.

8. Potential Tax Benefits

A possible advantage of a general partnership may be a tax benefit. A general

partnership may not pay income taxes. Instead, as indicated on the IRS Partnership
website, a general partnership "passes through" any profits or losses to its partners.

As the IRS site explains, "each partner includes his or her share of the partnership's
income or loss on his or her tax return." This may allow partners to deduct any business
losses from their individual tax return. It's important to consult with a legal and tax expert
for professional guidance.

Disadvantages
In examining the advantages and disadvantages of a partnership, it's important to pay
particular attention to any possible disadvantages. Let's take a look at some of the
downsides of a partnership.

1. Liabilities

In addition to sharing profits and assets, a partnership also entails sharing any business
losses, as well as responsibility for any debts, even if they are incurred by the other
partner. This can place a burden on your personal finances and assets. Basically, you
may be responsible for decisions your partner makes in connection with the business. In
looking at the advantages and disadvantages of a partnership, this may be one of the
top issues to consider.

2. Loss of Autonomy

While you likely enjoy being in total control of your business, in a partnership, you would
now share control with a partner and important decisions would be made jointly.

When you start exploring the advantages and disadvantages of a partnership, ask
yourself this: Are you able to compromise and relinquish certain ways of doing
business, if you have to? This may require a change in mindset, which may not be
easily maintained over the long haul. If you've worked on your own for a long time and
are used to being independent, you may find it stressful when you can't continue to do
things your own way.

3. Emotional Issues

A host of issues can surface that may make working with a partner difficult. For
example, conflicts can arise from differences of opinion or from unequal effort put into
the business. One partner may not pull his or her own weight. Relationships can sour.
Don't discount the emotions in weighing the advantages and the disadvantages of a
partnership.

But you may be able to prevent emotional problems by carefully choosing who you
partner with, looking for someone who shares in your vision, who has values similar to
yours, who has the same work ethic and where the chemistry is right. This can go a
long way towards preventing unexpected problems.

4. Future Selling Complications

As circumstances change in the future, you or your partner may wish to sell the
business. This could present difficulties if one of the partners isn't interested in selling.
You can deal with such an eventuality by including an exit strategy in the partnership
agreement. For example, you may include "a right of first refusal" should your partner
decide to sell his or her interest in the business to a third party. This ensures that you
retain the right to accept the offer, thus preventing a stranger from joining the business.
An exit strategy can address many other issues such as a partner's bankruptcy,
disability or desire to move out of the country.

5. Lack of Stability

When balancing the advantages and disadvantages of a partnership, you also need to
consider if you're able to cope with unpredictability. Even if you have a solid exit
strategy in your partnership agreement, the change triggered by a partner's situation
can cause instability in the business. Is riding the wave of instability one of your
strengths?

In analyzing some of the advantages and disadvantages of a partnership, you may

conclude that the advantages outweigh the disadvantages. What's more, some of the
disadvantages of a partnership may be overcome with due diligence, proper
investigation and a detailed, written, business prenup.

Ultimately, make sure that you're comfortable yourself in a partner role. Ask yourself
what growth goals can a partnership help you achieve that you could not do alone.
What expertise can you attract in a partner that may be a competitive differentiator?

Carefully evaluate all the advantages and disadvantages of a partnership in relation to

your financial situation and mindset. Above all, take your time to evaluate your
prospective partner to ensure that he or she is a good match. A business partnership is
a marriage. And as with any long-lasting marriage, it's based on finding the right person,
someone you trust, and enjoying being together within four walls.

Partnership Examples:

Red Bull & GoPro

One example of a partnership business is the relationship between Red Bull and GoPro.
GoPro sells more than portable cameras, while Red Bull sells more than energy drinks.
They are both lifestyle brands that have similar goals. They have the following in common:

 Fearless
 Adventurous
 Extreme
 Action-packed

These make them the perfect fit to pair up for campaigns, particularly when it comes to
action sports. GoPro gives adventurers and athletes the tools they need to capture their
stunts, sports events, and races from the athlete's perspective. In turn, RedBull puts on and
sponsors the events.
These companies have done many projects and events together, with the biggest being
"Stratos." In this campaign, Felix Baumgartner had a GoPro strapped to him and jumped
from a space pod that was 24 miles above the surface of the Earth. He set three world
records but also showed the potential humans have that defines Red Bull and GoPro.

Sherwin-Williams & Pottery Barn

One of the largest advantages of doing a co-branding campaign is having the opportunity to
showcase a service or product to a new audience. That's what Sherwin-Williams and
Pottery Barn did when they got together in 2013. They created an exclusive line of paints
together, and then put a new section up on Pottery Barn's website to allow customers to
easily pick which paint colors they wanted so it would go with their furniture choices. This
was mutually beneficial for both brands, and they wrote articles to show how customers
could decorate and paint on their own.

West Elm & Casper

Casper is an online bedding and mattress store that is known for selling mattresses in a
box. They have popular YouTube videos that show the mattress unboxing process and
even have a 100-day return policy. However, some shoppers might not want to buy the
mattress if they can't test it for themselves first. Casper decided to partner with West Elm so
people could try out the mattress in person before they bought it. West Elm was also able to
show off their stylish bedroom furniture.
This was a co-branding partnership that was mutually beneficial, as both brands reached a
wider group of shoppers. It also gave shoppers more options to see both what it'd be like to
sleep in a bed frame and to try the mattress first.

Dr. Pepper & Bonne Belle

Bonne Belle first launched the first flavored lip balm in the world, Lip Smacker, in 1973. The
original flavors included lemon, strawberry, and green apple. In 1975, they decided to
partner with Dr. Pepper to create one of the most popular flavors of lip balm ever, the Dr.
Pepper lip balm. They even teamed up for their new slogans to promote the lip balm.

Louis Vuitton & BMW

Louis Vuitton and BMW may seem like a strange partnership initially. However, they have
several traits in common. They both promote travel, as Louis Vuitton is known for their
elegant luggage lines. They both consider luxury to be important, and they're both popular
brands that are known for their high-quality products. BMW created a car named the BMW
i8, and Louis Vuitton created a four-piece set of bags and suitcases that seamlessly fit into
the rear parcel shelf in the BMW. This partnership showed the shared values of
technological innovation, creativity, and style.

Spotify & Uber

Spotify partnered with Uber because they both had the same goal of getting more users
even though they had different products. Uber riders can pick out a Spotify playlist to
choose what they'll listen to during their ride. This helps both Spotify and Uber fans have a
better experience during their ride in the car.
If you need help with partnership business examples, you can post your legal need on
UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site.
Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and
average 14 years of legal experience, including work with or on behalf of companies like
Google, Menlo Ventures, and Airbnb.

Basic Concepts of Accounting for

Partnership
Accounting for a partnership is imperative the same as is utilized for a sole proprietorship, excluding
that there are more owners. In extract, a distinct account follows each partner’s allocations,
investment and share of profits and losses.
As the business amplifies, one requires more capital and large number of people to regulate the
trade and split its risks. In such a scenario,

 People normally adopt the partnership form of establishment. Accounting for partnership
enterprises has its own attributes, as the partnership enterprise comes into being when 2 or
more people come together to begin business and allocate its profits.
 On several issues influencing the allocation of profits, there may not be specific accord
between the partners. In such a scenario the provisions of the Indian Partnership Act 1932 is
applicable.
 Likewise, computation of interest on capital, maintenance of partners capital accounts and
interest on drawings have their own distinctions.
 These distinct scenarios require specific treatment in accounting that has to be clarified.
 The treatment of scenarios like retirement of partner, admission, dissolution and death have
been elucidated in the upcoming chapters.

Let us now understand each concept of Accounting for Partnership : Basic Concepts, in detail.

1) What is Nature of Partnership?

When two or more people join hands to set up an enterprise and share its gains and losses, they are
said to be in partnership. Section 4 of the Indian Partnership Act 1932 states partnership as the
‘association between people who have consented to share the profits of an enterprise carried on by
all or any of them acting for all’.
People who have entered into a partnership with one another are independently termed as ‘partners’
and comprehensively termed as ‘firm’. The name under which the trade is carried is called the ‘name
of the firm’. A partnership enterprise has no distinct legal entity, apart from the partners comprising it.
Hence, the vital features of the partnership are:

 Two or More Persons: In order to manifest a partnership, there should be at least two
persons possessing a common goal. To put it in other words, the minimal number of partners
in an enterprise can be 2. However, there is a constraint on their maximum number of
people. By the uprightness of Section 464 of the Companies Act 2013, the Central
Government is authorized to stipulate a maximum number of partners in an enterprise;
however, the number of partners cannot exceed 100. The Central government has stipulated
the maximum number of partners in an enterprise to be 50, under Rule 10 of the Companies
(Miscellaneous) Rules, 2014. Hence, a partnership enterprise cannot have more than 50
people (partners)
 Agreement: It is the outcome of an accord between 2 or more people to regulate business
and share its gains and losses. The agreement (accord) becomes the basis of the
association between the partners. Such an agreement is in the written form. An oral
agreement is evenhandedly legitimate. In order to avoid controversies, it is always good if
the partners have a copy of the written agreement.
 Sharing of Profit: Another significant component of the partnership is, the accord between
partners has to share gains and losses of a trading concern. However, the definition held in
the Partnership Act elucidates – partnership as an association between people who have
consented to share the gains of a business, the sharing of loss is implicit. Hence, sharing of
gains and losses is vital.

2) Partnership Deed
A partnership is a kind of business where a formal agreement between two or more people is
made and agreed to be the co-owners, distribute responsibilities for running an organization and
share the income or losses that the business generates. This features of partnerships are
documented in a document which is known as partnership deeds.

What is a Partnership Deed?

A partnership deed also called as a partnership agreement, is a record that outlines in detail the
rights and functionalities 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.
The Partnership comes into the limelight when:

 There is an outcome of agreement among the partners.

 The agreement can be either in written or oral form.
 The Partnership Act does not demand that the agreement has to be in writing. Wherever it is in
the form of writing, the document, which comprises terms of the agreement is called
‘Partnership Deed.’
 It usually comprises the attributes about all the characteristics influencing the association
between the partners counting the aim of trade, the contribution of capital by each of the
partner, the ratio in which the gains and losses will be divided by the partners and privilege and
entitlement of partners to interest on loan, interest on capital, etc.,
The sections of partnership deed can be modified with the accord of all the partners. The deed
must be appropriately drafted and outlined as per the provisions of the ‘Stamp Act’ and ideally
registered with the Registrar of Firms.

Registration of Partnership Deed:

All the rights and responsibilities of each member are recorded in a document known as
Partnership Deed. This deed can be oral or written; however, an oral agreement is of no use
when the firm has to deal with the tax. Few essential characteristics of partnership deed are:

 The name of the firm.

 Name and addresses of the partners.
 Nature of the business.
 The term or duration of the partnership.
 The amount of capital to be contributed by each partner.
 The drawings that can be made by each partner.
 The interest to be allowed on capital and charged on drawings.
 Rights of partners.
 Duties of partners.
 Remuneration to partners.
 The method used for calculating goodwill.
 Profit and loss sharing ratio
The sections of partnership deed can be modified with the accord of all the partners. The deed
must be appropriately drafted and outlined as per the provisions of the ‘Stamp Act’ and ideally
registered with the Registrar of Firms.

Partnership Deed Contents

While making partnership deed, all the provisions and the legal points of the partnership deed are
included. This deed also includes basic guidelines for future projects and can be used as evidence
at times of conflict or legal procedures. For a general partnership deed below mentioned
information should be included.

 The Partnership Firm name accepted by all the partners should be mentioned. The name should
not have titles like “company” or “private company.”
 Nature of business should be mentioned.
 The origin date of the business.
 Headquarters and branches address.
 Duration of Partnership (if applicable)
 Partner’s contribution to the capital, Profit sharing ratio, and Salary to be mentioned
 Interest on contribution and the Interest. Retirement or suspension terms and conditions of the
retirement or expulsion of a partner.
  Preparation of the business’s accounts and the terms for internal and legal audit
 Procedure for dissolution of a firm and guidelines for resolving any conflicts and agreement
method to follow.

Importance of partnership deed

 Few are the important advantages of the well-drafted deed:

 It controls and monitors the rights, responsibilities, and liabilities of all the partners
 Avoids dispute between the partners.
 Avoids confusion on profit and loss distribution ratio among the partners.
 Individual partner’s responsibilities are mentioned clearly.
 Partnership deed also defines a remuneration or salary of the partners and working partners.
However, interest is paid to each partner who has invested capital in the business.

3) Special Aspects of Partnership Accounts

Accounting treatment for a partnership enterprise is similar to that of a sole proprietorship
trading concern except for the following aspects mentioned below:

 Maintaining Partners’ Capital Accounts

 Allocation of Profit and Loss amidst the partners
 Reconciliation for the Wrong Appropriation of gains in the past

4) Maintenance of Capital Accounts of Partners

All transactions associated with partners of an enterprise are maintained in the books of an
enterprise via their capital accounts. This incorporates the amount of money pulled in as
withdrawal of capital, capital, interest on capital, the share of profit, partner’s salary, commission
to partners, interest on drawings, etc.,
There are 2 procedures by which the capital accounts of partners can be recorded. Namely :

 Fixed capital method

 Fluctuating capital method
The distinction between these two lies in whether the transactions other than addition/withdrawal
of capital are maintained in the capital accounts of the partners.

 Fixed Capital Method: Under the fixed capital process, the amounts of the partners will remain
fixed except additional capital is brought in and introduced or a portion of the capital is
withdrawn according to the agreement among the partners.
 Fluctuating Capital Method: Under the fluctuating capital process, only one account, that is
capital account is recorded and maintained for every partner. All the adjustments namely –
interest on capital, the share of profit and loss, interest on drawings, drawings, commission to
partners or salary, etc. are recorded in the partners’ capital accounts. This causes the balance
 fluctuation in the capital account from time to time. In the non-appearance of any guidance, the
capital account must be outlined by this method.

5) Distribution of Profit Among Partners

How are profits distributed among partners?
Following the provisions of the partnership deed, the gains and losses made by the enterprise are
allocated among the partners. Hence, sharing of gains and losses is equivalent among the
partners, if the partnership deed is quiet.
The profits and losses of the firm are allocated among the partners in an accorded ratio.
However, if the partnership deed is quiet, the partnership firm’s gains and losses are to be
equally shared by all the partners.

 In the case of a sole proprietorship :

 The profit or loss, as determined by the profit and loss account, is being transferred to the
capital account of the proprietor. In case of a  partnership, certain modifications such as interest
on capital, interest on drawings, commission to partners and salary to partners are essential to
be made
 For the described purpose, it is customary to prepare a Profit and Loss Appropriation A/c of the
firm and ascertain the final figure of profit and loss to be allocated among the partners in their
profit sharing ratio

6) Guarantee of Profit to a Partner

What is Guarantee?
Guarantee is defined as a surety of a specific amount of gains by one or more partners and in
some cases by the enterprise, where the burden of guarantee is carried by the party furnishing
such a guarantee. To put it in other words, it is a minimum fixed amount for the partner who is
given such a guarantee.

What is Guarantee of Profit to a Partner?

If the actual share in profits is less than the promised amount, then the deficit amount will be
handled either by the firm or by any of the partner. There are various ‘Adjustments’ which an
enterprise will do in such a scenario. If the actual share in gains is more than the minimum
guarantee amount then the enterprise will furnish the actual gains to the partner.
Sometimes a partner is :

 Admitted into the enterprise with a surety of certain minimal amount by way of his share in the
profits of the firm
 Such guarantee may be given by the former partners in a definite ratio or by any of the former
partners, individually to the new partner or an associate
  The minimal promised amount will be paid to such a novice partner when his share of gain as
per the profit sharing ratio (PSR) is less than the promised amount

7) Past Adjustments
What is Past Adjustment
There are specific situations in a firm where consequence like an omission of an entry, a mistake
in accounting, change in profit sharing ratio (PSR) with retrospective effect, etc., Few
adjustments examples are:

 When there is a single error: Under this scenario, an adjustment table is prepared and an
adjusting journal entry is outlined to correct the error
 When there are multiple errors: In this scenario, the enterprise outlines the Profit and Loss
Appropriation account, which is a part of the final account, in working notes along with the
specific table. Subsequently, necessary changes will be made in the journal entry
Occasionally, a few exclusions or errors in the preparation of statements are initiated after the
final a/c have been outlined and the profits allocated among the partners. The exclusion may be
in respect of interest on drawings, interest on capital, partner’s salary, interest on partners’ loan,
outstanding expenses or partner’s commission. There may be some differences in the provisions
of partnership deed or structure of accounting possessing influence with retrospective effect. All
these acts of exclusion and commission require adjustments for rectification of their influence.
Instead of modifying the old account, required adjustments can be made either:

 Through ‘Profit and Loss  Appropriate A/c’

 Directly in the Capital A/c of the particular partners

8) Final Accounts: Final Accounts of a Company

What are Final Accounts?
The final accounts are the accounts which are prepared at the end stage of an accounting year.
This account highlights both the financial position and profits of a business, which can be used
by any investors or internal bodies for various reasons. This final trial balance comprises of all of
the journal entries that are used to close the books, such as payroll tax accruals and wage.
Final accounts of a partnership enterprise are outlined in a similar way as those outlined for a
sole trading enterprise with just one difference which associates to the allocation of gain among
the partners. After outlining the Trading and Profit and Loss A/c, the net profit or net loss is
being transferred to an account called Profit and Loss Appropriation A/c. All modifications with
respect of interest on drawings, interest on capital, partners’ share of profit and loss, partner’s
salary, interest on partner’s loan, etc.are made via the Profit and Loss Appropriation A/c. This is
done in order to distinguish between the results of operations of the business and the allocation
of the gain among the owners. 
How does the Partnership Work?
Partnership in Business
In business, there are two types of partnership. Namely:

 General Partnership: It is formed when two or more individual enters into an agreement to
run a business and make profits. Generally, no written agreements are made in this
partnership but share all joint and various liabilities of the partner.
 Limited Partnership: The partner invest money but do not operate or involve themselves in
operating a business. This partnership is formed legally and by creating an agreement.

Types of Partners in a Partnership

Listed below are the different type of partners depending upon the type and level of partnership:

 General and limited partners: General partners manage and participate in the partnership
and also had liability for depts. Whereas, limited partners invest in the business but do not
interfere in the management.
 Salaried partners and Equity partners: In partnership, some partners are paid salary,
while the equity partners have a share in the business.
 Different levels of partners: Here, the job role, responsibilities, investment, level of inputs
may be different.

Types of Partnerships
A partnership is divided into different types depending on the state and where the business
operates. Here are some general aspects of the three most common types of partnerships.

 General Partnership
A general partnership comprises of two or more owners to run a business. In this partnership, each
partner represents the firm with equal right. All partners can participate in management activities,
decision making, and have the right to control the business. Similarly, profits, debts, and liabilities
are equally shared and divided equally. 
In other words, the general partnership definition can be stated as those partnerships where rights
and responsibilities are shared equally in terms of management and decision making.  Each partner
should take full responsibility for the debts and liability incurred by the other partner. If one partner is
sued, all the other partners are considered accountable. The creditor or court will hold the partner’s
personal assets. Therefore, most of the partners do not opt for this partnership.

 Limited Partnership
In this partnership, includes both the general and limited partners. The general partner has unlimited
liability, manages the business, and the other limited partners. Limited partners have limited control
over the business (limited to his investment). They are not associated with the everyday operations
of the firm.
In most of the cases, the limited partners only invest and take a profit share. They do not have any
interest in participating in management or decision making. This non-involvement means they do not
have the right to compensate the partnership losses from their income tax return.

 Limited Liability Partnership

In Limited Liability Partnership (LLP), all the partners have limited liability. Each partner is guarded
against other partners legal and financial mistakes. A limited liability partnership is almost similar to a
Limited Liability Company (LLC) but different from a limited partnership or a general partnership. 

 Partnership at Will
Partnership at Will can be defined as when there is no clause mentioned about the expiration of a
partnership firm. Under section 7 of the Indian Partnership Act 1932, the two conditions that have to
be fulfilled by a firm to become a Partnership at Will are:

 The partnership agreement should have not any fixed expiration date.
 No particular determination of the partnership should be mentioned.  
Therefore, if the duration and determination are mentioned in the agreement, then it is not a
partnership at will. Also, initially, if the firm had a fixed expiration date, but the operation of the firm
continues beyond the mentioned date that it will be considered as a partnership at will.

What is a Partnership Agreement?

A partnership agreement is an agreement between two or more individuals who sign a contract to
start a profitable business together. In the Partnership agreement, the partners are equally
responsible for the debt of an organization. Even if one person withdraws his/her partnership, they
are liable for an already existing debt, and future liability if they do not provide with proper notice of
retirement. Sometimes, a partnership can also exist without signing any scripted agreement, in such
cases law that regulates partnership would apply.
Few things that should be highlighted on the partnership agreement are given below:

 Type of business
 The contribution of a fund by each partner
 Each partner’s right and responsibilities
 Percentage of ownership and profit and loss to be distributed amongst each other

Categories of Agreement
Partnership Agreement is classified into three categories, namely:

 General Partnership
 Limited Partnership
 Silent Partnership
Importance of Partnership Agreement:
A partnership agreement is vital to keep away the disagreement, confusion or any changes that
might occur in the course of business tenure. Below are a few points that describe why a partnership
agreement is essential:

 To form distinguished roles and responsibilities for each partner.

 To avoid tax problems, the tax status shows that the partner is dispensing profits to each
partner based on accounting practice and acceptable tax.
 To avoid liability and legal issue, if there is any with any of the partners.
 It helps to deal with any lifestyle or circumstance changes of any partners. They usually deal
with buy-out agreement with individual partners.
 To surpass non-compete agreements and conflict of interest with partners.
 To overrule the state law.

Partners Contribution & Percentage Distribution

 Partner contribution can be in a different amount and type, including cash, idea, partner’s
time on a job. In this regards, each partner’s contribution need not necessarily be in cash.
That means the partners may make uniform inputs to the business, have equal rights, but the
inputs may not be in cash but other different forms.
 Since each partner has distinct responsibilities and strength, partnership share is 100 per
cent impartial from a financial point of view.
 The partnership percentage can be estimated by calculating the total cash required to invest
in starting a new business and dividing each partner share with that total.
 The role each partner plays in starting a company and the amount of work and time
contributed can also dictate a percentage of proprietorship as much as financial offerings.
 If partners have a corporate entity, create a total stock that has equal worth as the business,
if 1000 stock is 100 per cent ownership divide and calculates each partner share.
For example, to get the estimated value of a share in a business, the cost of a company should be
divided by the total number of shares. If the business is worth ₹. 35,00,000/- with 1,000 shares, the
share value is ₹. 3,500/-.

Basic Concepts of Accounting for Partnership

Accounting for a partnership is imperative the same as is utilized for a sole proprietorship, excluding
that there are more owners. In extract, a distinct account follows each partner’s allocations,
investment and share of profits and losses.
As the business amplifies, one requires more capital and large number of people to regulate the
trade and split its risks. In such a scenario,

 People normally adopt the partnership form of establishment. Accounting for partnership
enterprises has its own attributes, as the partnership enterprise comes into being when 2 or
more people come together to begin business and allocate its profits.
  On several issues influencing the allocation of profits, there may not be specific accord
between the partners. In such a scenario the provisions of the Indian Partnership Act 1932 is
applicable.
 Likewise, computation of interest on capital, maintenance of partners capital accounts and
interest on drawings have their own distinctions.
 These distinct scenarios require specific treatment in accounting that has to be clarified.
 The treatment of scenarios like retirement of partner, admission, dissolution and death have
been elucidated in the upcoming chapters.

Indian Partnership Act 1932

Most of the businesses in India adopt a partnership business, so to monitor and govern such
partnership The Indian Partnership Act was established on the 1st October 1932.  Under this
partnership act, an agreement is made between two or more person who agrees to operate the
business together and distribute the profits they gain from this business. 
The five important elements of The Indian Partnership Act 1932 are:

 Agreement for Partners – It is an association of two or more individuals, and a partnership
arises from an agreement or a contract. The agreement (accord) becomes the basis of the
association between the partners. Such an agreement is in the written form. An oral
agreement is evenhandedly legitimate. In order to avoid controversies, it is always good, if
the partners have a copy of the written agreement.
 Two or More Persons –  In order to manifest a partnership, there should be at least two (2)
persons possessing a common goal. To put it in other words, the minimal number of partners
in an enterprise can be two (2). However, there is a constraint on their maximum number of
people. 
 Sharing of Profit – Another significant component of the partnership is, the accord between
partners has to share gains and losses of a trading concern. However, the definition held in
the Partnership Act elucidates – partnership as an association between people who have
consented to share the gains of a business, the sharing of loss is implicit. Hence, sharing of
gains and losses is vital.
 Business Motive – It is important for a firm to carry some kind of business and should have
a profit gaining motive.
 Mutual Business – The partners are the owners as well as the agent of their firm.  Any act
performed by one partner can affect other partners and the firm. It can be concluded that this
point act as a test of partnership for all the partners.