Nature of Partnerships
Nature of Partnerships
Nature of Partnerships
When starting a business, it can be with a sole proprietorship, a partnership, or as a company. A partnership is the most popular and the easiest to form. Partnerships combine individual talents and skills together for a hopefully successful business enterprise venture. Man has realized that it is easier to do something with the help of others than singly. Partners, also, provide a greater chance of obtaining equity capital for their business venture, while sharing the risks that go along with a rapidly growing business. There are basically three types of partnerships: the general partnership, the limited partnership, and the limited liability partnership. This paper discusses the general partnership.
The definition of a partnership is “the association of two or more persons to carry on as co-owners of a business for profit .” Partnerships may be formed as a formal agreement or informally with a handshake. Either way, a partnership agreement should be written up with all the aspects of the partnership covered. Once the partnership agreement is filled out and agreed on by all partners, each partner will need to sign stating they are in agreement. A partnership agreement helps to alleviate any conflicts that may arise at any future date.
When accounting for a partnership, it will depend on the accounting method stated in the partnership agreement. If any noncash assets were contributed, these will need to be assigned a fair value. Any noncash assets brought to the partnership are the property of the partnership . Each partner investing capital will have to be agreed upon by all partners. This investment will determine the ratio or percentage of net profit or loss to be divided between each partner. If there is no ratio or percentage stated in the partnership agreement, then everything is divided equally.
When setting up the accounting for the business, most accounting methods have multiple
Nature of Partnerships
When starting a business, it can be with a sole proprietorship, a partnership, or as a company. A partnership is the most popular and the easiest to form. Partnerships combine individual talents and skills together for a hopefully successful business enterprise venture. Man has realized that it is easier to do something with the help of others than singly. Partners, also, provide a greater chance of obtaining equity capital for their business venture, while sharing the risks that go along with a rapidly growing business. There are basically three types of partnerships: the general partnership, the limited partnership, and the limited liability partnership. This paper discusses the general partnership.
The definition of a partnership is “the association of two or more persons to carry on as co-owners of a business for profit .” Partnerships may be formed as a formal agreement or informally with a handshake. Either way, a partnership agreement should be written up with all the aspects of the partnership covered. Once the partnership agreement is filled out and agreed on by all partners, each partner will need to sign stating they are in agreement. A partnership agreement helps to alleviate any conflicts that may arise at any future date.
When accounting for a partnership, it will depend on the accounting method stated in the partnership agreement. If any noncash assets were contributed, these will need to be assigned a fair value. Any noncash assets brought to the partnership are the property of the partnership . Each partner investing capital will have to be agreed upon by all partners. This investment will determine the ratio or percentage of net profit or loss to be divided between each partner. If there is no ratio or percentage stated in the partnership agreement, then everything is divided equally.
When setting up the accounting for the business, most accounting methods have multiple
References: Dissolution of a Partnership. (2011, December). Retrieved from http://www.insolvencydirect.bis.gov.uk/technicalmanual/Ch49-60/Chapter%2053/Part%205/Part%205.htm (2012). Partnership: Liquidation. In Intermediate Accounting III ACC-309 (p. 135). The McGraw-Hill Companies. (2012). Partnerships: Formation, Operation, and Changes in Membership. In Intermediate Accounting III. The McGraw-Hill Companies. Choosing the right Type of Business Partnership. (2013). Retrieved from BizFilings: http://www.bizfilings.com/learn/form-partnership.aspx Accounting for Partnership Basic Concepts. (n.d.). Retrieved from http://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=2&ved=0CDAQFjAB&url=http%3A%2F%2Fwww.agnel.org%2Fdocuments%2F10188%2F12610%2FXII-CHAP-1.pdf&ei=YpJYUonKIKmtiQL_hoH4AQ&usg=AFQjCNG_ilXQAk9styhqasie4i573JkxsQ&bvm=bv.53899372,d.cGE Johnson, J. (2013). Difference in a Liquidated Company and a Dissolved Company. Retrieved from Houston Chronicle: http://smallbusiness.chron.com/difference-liquidated-company-dissolved-company-23255.html