What is partnership?

 A partnership is a business relationship among two or more persons to share profits and
losses of the business carried on by all or one of them on behalf of all.

What are partners, firm , firm name?

 People who have entered in a partnership eith one another individually are called partners,
collectively a firm. The name under which business is carried is called the firm name

Nature of partnership

 According to legal POV, it is not a separate legal entity from its partners. A firms debts can
be paid thru the private assets of the partners.
 According to the accounting POV, it is a separate legal entity

Characteristic/features

 Two or more people except those who are minors, crazy or criminals
 Max no of partners according to companies act,2013 (sec 464) is 50
 It has an agreement called the partnership deed which can be either written or oral
 Established for lawful business
 Agreement is to share profits and losses

Rights of a partner are to

 Participate in mgmt. of business

 Be consulted about the affairs of the business
 Inspect the books of accs. Have a copy of it
 Share profits and losses with others
 Receive interest at 6% p.a or decided amt
 Not allow admission of a new partner
 Retire after giving a notice in adv
 Remuneration when they pay for expenses

Partnership deed

 Important legal document that defines the relationship among partners in a business
 It is signed by all the partners
Importance of PD:
 Governs the rights ,duties and liabilities of each partner
 Disputes can be settled on the basis of it when reqd

Is it important to have a partnership deed?

 Not having a PD is okay but is recommended to have a written doc

 Incase a written doc doesn’t exist, provisions of the Indian partnership act, 1932 will apply
In the absence of a partnership deed:

Sharing profit and losses EQUALLY

Interest on capital NOT PAID
Interest on drawings NOT CHARGED
Interest on loan PAID @6% PA
Remuneration to partners NOT PAID
Admission of partners NOT UNLESS EVERYONE AGREES

Charge and appropriation against profit

Payment made or due to a partner may be one of these
Charge against profit means it would be an expense for the firm and is paid regardless of
earning profit or incurring loss.
Eg. Int on loan, rent payable to partner, managers commission

Appropriation of profits
Payments made or due to partners ONLY when a firm earns profits.
Eg. Salary/commission to partners, int on capital and transfer of profits to reserve.

ACCOUNTING TREATMENTS

INTEREST ON LOAN

PARTICULARS L/F DR CR
i) To provide interest on loan

INT ON LOAN BY FIRM TO PARTNER

PARTICULARS L/F DR CR
i) For charging int on loan to partner
DRAWINGS