Chapter 23& 24

Question 1

What is the nature of partnerships?

Answer 1

A partnership is defined by the Partnership Act 1890 as ‘the relation which subsists between persons carrying on business in common with a view of profit’. It cannot have less than 2 nor more than 20 partners (except professional firms).

Question 2

What is The rights of partners (per the Partnership Act 1890)

Answer 2

• Each partner has unlimited liability.
• Each partner has one vote.
• Every partner is entitled to take part in the
  management of the business.
• Every partner is entitled to access to the books and papers of the partnership.

Question 3

What is the sharing of profits
between the partners where unequal
contributions of labour, capital and withdrawls?

Answer 3

Each partner is given a prior share of the profit as:
(1) a salary related to the amount of time each devotes to the business; and
(2) interest on the capital each invests.
The remaining residual profit is then divided between the partners according to whatever they agree is fair (e.g. equally).

• Another aspect of sharing partnership profits concerns interest on drawings. This is intended to compensate the partner(s) that has(have) annual drawings that are
  less than those of the other partner(s).
• Each partner is charged interest on drawings from the date of the drawings to the end of the accounting year.