Partnerships Flashcards
What is a partnership
2-20 owners work together to make a profit
Characteristics of partnerships?
Legally binding agreement between partners
All partners responsible for debts, according to ratio
No continuity
Dissolve, business liquidated
No auditing requirements
What is the agreement?
Drawn up, outline how things done
Written documents signed by all partners
What is a limited partner?
Not liable for debts
Liability limited to capital invested
May not take part in management
Not all may be limited
What are the features?
Name of b Type of b Profit and loss ratios Arbitration procedures How long partnership will last Banking arrangements Changes of partners
Disadvantages of partnerships?
Decision - making slow
All liable for debts/bad decisions/fraud of one partner
More capital sole traders, less than companies
No continuity
Advantages of partnerships?
Combine different skills Stronger financially Capital increased if agree Easy, cheap to start Pay tax as part of personal tax liability, not fixed % on b profits
Position of partnership when no agreement?
No interest on capital
No rules for drawings, holidays, resolve of disputes
All profits/losses shared equally
All Agree on new partner admitted
If guilty of fraud, can’t be asked to leave
Importance of appropriation account?
Shows how net profit shared
Required by agreement
Fixed capital account?
Capital, current separated
Capital account fixed with money invested by partner
Current acc: profit, interest, salaries, bonusses
Fluctuating capital?
Profits, salaries, bonuses cr
Drawings, interest on drawings dr
Capital + current in one
Internal audits?
Throughout year
See how b manages risks, meeting strategic objectives
Internal auditors
External audits?
Once a year
Prepared according to legal requirements
Independent firm
