Definitions [3]
Define the following business entities:
Partnership
A partnership is a form of business in which two or more persons come together to carry on a business and share its profits and losses as per an agreed-upon partnership deed.
Definition: Partnership
- Section 4 of the Indian Partnership Act, 1932, defines partnership as ''Partnership is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all.''
- According to Prof. Handy, "Partnership is the relation existing between persons competent to make contract, who agree to carry on a lawful business in common with a view to earn private gain.
Definition: Partnership Deed
The document containing the partnership agreement among partners is called Partnership Deed.
Key Points
Key Points: Partnership
- Meaning: A partnership is when two or more people join to run a business and share profits as per a mutual agreement.
- Key Features: Based on agreement, profit-sharing, mutual agency, legal limit of 50 partners, and lawful business only.
- Nature: Treated as separate for accounting, but not legally—partners are personally responsible for the firm’s debts.
- Rights of Partners: Take part in business, share profits, check accounts, get interest on loans, and retire with notice.
- Liabilities: Unlimited; partners must use personal assets if needed and can’t keep personal gains made using the firm’s name/assets.
Key Points: Partnership Deed
- Meaning: A written agreement between partners outlining terms—recommended but not compulsory.
- Contents: Includes firm name, partners' details, capital, profit-sharing, interest, salary, etc.
- Purpose: Avoids disputes by clearly defining partners' rights, duties, and liabilities.
- Disputes: Provides rules for admission, retirement, death, and dispute settlement.
- Importance: Ensures smooth functioning, legal clarity, and easy conflict resolution.
Journal Entries: Partner's Capital Account
A. For capital brought in cash or by cheque
Cash A/c ....Dr.
Bank A/c ....Dr.
To Partner’s Capital A/c
(Being the capital introduced in cash or by cheque)
B. For capital brought in kind (assets)
Machinery A/c ...Dr.
Furniture A/c ...Dr.
Purchases A/c ...Dr.
To Partner's Capital A/c
(Being the capital introduced in kind credited to his Capital Account at the agreed value)
