Fundamentals of Partnership

Partnership is the relation between persons who have agreed to share the
profit of a business carried on by all or any one of them acting for all.
- Section 4 of the Indian Partnership Act, 1932
Individually the Persons are called partners and collectively a firm.
Minimum 2
Maximum 10 in case of banking business and 20 in case of other business. Note the
maximum no.limit is not given in partnership act it was given in the company act
Features of
partnership
1. Two or more Persons
2. Agreement
It can be oral or written. A written agreement when executed on a
stamped paper is known as Partnership deed.
3. Profit Sharing Ratio
There may be a provision that a particular person shall not bear loss.
4. Legal Business
5. Mutual Agency
What are the legal provisions in the absence of partnership deed.
1. Interest on capital = No
2. Interest on Drawings = No
3. Salary or Commissions = No
4. Profit sharing Ratio = Equal
5. Interest on loan = 6% pa.
6. Admission of new partner = with the consent of all the partners.
7. Each partner can participate in the conduct of the business
8. Each partners can inspect the books of the firm.

Profit & Loss Appropriation account
Dr. For the year ended Cr.
Particulars
Rs. Particulars Rs.
To interest on capital
xxx
A xxx
B xxx
xxx
To Salary
A xxx
B xxx
By P/L A/c
( Net profit)
xxx
by Interest on Drawings
xxx
xxx
To Commission
A xxx
B xxx
To Profit
A xxx
B xxx
A xxx
B xxx
xxx
xxx
Interest on Drawings
A.
Begining Middle End
P.M @ yearly 6 6 5
P.M @ half yearly 3 3 2
Quarterly 7 6 4


B . Average Period Method
This method is used when Drawings were given in total and rate is given with
per annum
IOD = Drawings

C. Average rate of Interest
This method is used when Drawings were given in total and rate is given without
per-annum
IOD = Drawings

D. Product Method


Simple Interest Product Method
6
100 12
R

100
R

Time Left After First Drawing + time Left after last Drawing
2
Type of Capital Method


Fixed Capital Method fluctuating capital Method
Dr. Capital A/c (Fluctuating ) Cr.
Particulars
Rs. Particulars Rs.
To Drawings
To Interest on Drawings
To P/L A/c (loss)
To Balance c/d
By balance b/d
old Business xxx
By bank A/c
(If new Business)
xxx
By Int. on capital
By Salary
By Commission
By Profit and loss
Appropriation (Profit)
Fixed Capital Method
Dr. Capital A/c Cr.
Particulars
Rs. Particulars Rs.
To Bank A/c (Capital
withdrawn)
To Balance c/d
By Balance b/d or Bank
xxx
By Capital Introduce
xxx
Features of LLP
1. Name is approved by Registrar of companies
2. Comes into exientence by agreement
3. Liability is fixed
4. At least two persons should be appointed Designated Person one of
whom must be a partner.
5. LLP must file a solvency certificate every year
COY Act prohibits more than 10 in Banking and 20 in other but the business can
be done in joint Stock Company or limited liability partnership (LLP)
LLP comes into existence in 2008.