Wednesday, December 4, 2019

Partnership Form of Business Samples for Students -Myassignment

Question: Discuss about the Partnership Firm. Answer: Introduction Partnership by definition refers to a relationship which exists between persons with mutual concern and common interest to start a business venture with a motive to continue it further with a view to earning profit. The mutual rights and duties of partners are ascertained by an agreement known as partnership deed wherein the share of profit and other important clauses are mentioned and under respective act be it registered or unregistered partnership business. The partnership deed or agreement is a mutual contract and has agreement papers and documents governing the terms, rules and regulation and strict norms to be followed by each and every partner during the course of the partnership business. However, in the recent era partnership firms involving a group of people do render names to different partners. The names given are Chief Executive Officer, Managing Director, Junior Partners and Senior Partners. The report below will shed light on partnership, the business, partnership deed and the basis of compensating the partners. Determination of the senior partner A partnership firm can be started as registered or unregistered and set up any major or minor area according to their line of interest. A partnership starts with minimum two people involved and can extend up to many owners even beyond hundred depending upon the partnership firms scale of business. Persons who form a partnership with each other are called individually partners and if a group of people collectively form it is known as a partnership firm. The designation of partners is not to be termed legally rather it is not necessary or bounded by law to keep a separate name or designation for each partner working in the firm (Grant, 2010). They are at a whole known as partners of the firm by the corporate world. All these partners are whatever designation given still abounds by their role and responsibilities are already written under the partnership agreement signed by all the partners at the initiation level. The designation given to each partner differs from firm to firm on what basis and assumptions each partner are given their designations and role under the firm (Savas, 2000). A firm can give a partner the designation of a senior level partner on various terms and reasons such as a senior partner can be the one who has the longest experience in the business world and can give maximum benefits in order to run the partnership firm profitably (Jones Noble, 2008). The designation of senior partner on allocation can also be given to a partner who has made the highest amount of capital investment at the initiation of the firm or has the highest stake in the firm (Faulkner, 1995). A partner plays the supervisory role at any decision taken for the benefit or any solution for any problem arisi ng in the firm and interfacing with the in-house contact for expansion and diversification of business. Senior partners designation can also be given to such partner who has the supreme level of involvement in the affairs of the business compared to any other partner, his responsibility, and risk associated with the firm is also higher than any other partner, which in turn also means that the rewards which are the profit sharing ratio of that partner is higher and thus he can considering all these aspects can be denoted as Senior partner (Grant, 2010). Senior partner is generally the one who is accountable for main decision making for the partnership firm. Herein the management student is provided the responsibility of a senior partner. Agreement to share profit A partnership agreement is prepared at the initial level of the business. The basis for which profit is shared to the partners is defined by the profit sharing ratio, which means the ratio in which the profits, as well as the losses, is distributed or divided among each individual partner. There are situations where the profit sharing and loss sharing ratio is different for different partners. It can be said that the profit sharing ratio principle varies from firm to firm but the profit sharing ratio method should always be finalized when the agreement of partnership is made (Kelman, 2005). When such circumstances arrive that there has been no finalization in the partnership deed or agreement about the method of profit sharing ratio then in such circumstances the profits, as well as losses, are evenly or equally distributed among each individual partners. Profits or loss distributed among partners can be distributed as the ratio of their capital contribution made in the business if a lready agreed and put in the partnership deed (Sinha, 2016). Profit sharing ratio can be based on any other factor as mentioned in the partnership deed mutual consented by all the partners. If any clauses of interest to be paid to partners on the basis of capital contribution is mentioned in the agreement then the partners are liable to be paid interest simultaneously but in the absence of such agreement or the absence of such clause in the partnership deed no partner shall be entitled to receive any kind of interest on any amount of capital contributions made by them even if the profit sharing ratio varies or the capital contribution made by the partners is varied (Jones Noble, 2008). One more important thing to be noted is that even if the partnership agreement has permitted for payment of interest on capital contribution but it is observed that the partnership firm is not being able to generate profits and running on losses in such situation no interest should be allowed to draw n by the partners (Moncrieff, 2014). The profit sharing ratio in the agreement clause not only determines the basis on which profits and losses are to be shared among the partners but also prevents any misunderstanding or problem ever arising among the partners related to this profit sharing ratio, interest on capital contribution and any other matter which could hinder the smooth operation of the partnership firm (Matt Simon, 2014). Factor that influences the salary of partners Partnership by definition refers to a relationship which exists between persons with mutual concern and common interest to start a business venture with a motive to continue it further with a view to earning profit. The mutual rights and duties of partners are ascertained by an agreement known as partnership deed wherein the share of profit and other important clauses are mentioned and under respective act be it registered or unregistered partnership business. The property and rights along with interest that are brought into the partnership stock or an acquisition is done through purchase or any other method due to the act of partnership or any other mechanism in the operations of partnership are stated in the Act and should be considered by all partners and all acts of the partners should adhere to it. Partners are bound to render true accounts and full information of all things affecting the partnership to any partner or his legal representative (Sinha, 2016). The partners of a partnership business have a priority to earn profits by the best way possible to expand their business. The distribution of profits to the partner is done after meeting every cost of the business and paying the expenses. Moreover, it needs to be noted that some partner may receive a salary owing to their contribution that is additional to the share in the profits that are allocated (Matt Simon, 2014). We can surely consider paying a salary to each partner who put in and reflects their expertise, experience or ability to generate business for the partnership. It is always said a little extra effort deserves a little extra pay (Teisman Klijn, 2002). A portion of guaranteed payment in form of salary can be given to those partners who has that very active management and participation in day to day management of the business, trying every bit from hard to easy ways of flourishing the business, gathering ideas of how to generate maximum profits, protecting the company from incurring any extra cost or ways to bear minimum losses (Huxham, 1996). Such partners should be awarded an extra source of income in the form of salary or fixed remuneration per month other than the profits emerging out of that partnership agreement and on the basis of the investment made by each and every partner. These extra incomes will boost the morale of the partners make them mentally happy and motivate them to do put in that extra effort and devote their full time in the progress and expansion of business which is reasonable and fair (Marsh, 2009). A salary of payment that is guaranteed can be said to be a sum that is specified or projected as per the percentage of the gross income over a span of time. A salary or guaranteed payment is either a set amount per month or it is a set percentage of the partnerships gross income over the period. Any income that derives from a partnership whether it is a distribution of profit or salary is considered as an ordinary income. This is reported to every partner at his tax return. The main difference when it comes to paying salary to a partner and distributing profit is that the service of Internal Revenue does not take into consideration the partner as an employee for the matter of tax withholding, expenses of the business sand deferred plans of business (Svejenova et. al, 2016) It might happen that the payment of salary to one partner might influence the other partner due to the salary cost as it considered as a deduction from the income tax of another partner. Hence, in this manner, the partners that provide capital can lessen the bill of tax by compensating the service partner in terms of salary (Smith et. al, 2010). As per the sections and laws governing the partnership act, it is considered that a salary received by a partner from a partnership firm is taxable as business income, they accordingly get benefits under the tax laws and the partners salary shall be considered as gross receipts for the partnership business. Inclusion in a partnership agreement A partnership agreement is a mutual contract between the partners who start a business with mutual concern and with a view to earning profit from a registered or unregistered partnership business. This mutual contract has agreement papers and documents governing the terms, rules and regulation and strict norms to be followed by each and every partner during the course of the partnership business. A partnership agreement is prepared at the initial level of the business. The agreement should be made covering all aspects of the law in front of an attorney or under the guidance of an attorney so that all the important points rather rules of the partnership agreement is incorporated in it right from the formation to the dissolution of the partnership business (McLaney Atrill, 2012). This agreement is of immense valuation so that there is no conflict between any partners while running the business and if any queries, confusions or problem arises it can be sorted out with the help of the p artnership agreement ( Holloway Parmigiani, 2014). Basically, a partnership agreement defines the roles and duties of each partner, provides clarity for taxation issues, the solution to avoid legal and liability issues and to handle partner issues. The main points in a partnership agreement should be Name and address of partnership, the duration for which the partnership business shall last, what is the main business purpose for which the partnership is made for, the financial account information of each and every partner, the investment or contribution made by each partner and the ratio of profit to be shared, circumstances under which new partners might be admitted into the partnership, working hours of every partner, the degree of control of each partner should be clearly mentioned in the agreement, the extent of liability each partner holds in the business , ratio to which losses to be borne by the partners, types of business activities that is needed for the partners., disposi tion of the name of the partners if the partner leaves, resolution of the dispute (if any arises and the agreement of buy and sell (Holloway Parmigiani, 2014). Other factors The other factors to be included in the partnership agreement for salary or remuneration to be paid for that partners whose extra time devotion and reflection of their expertise and experience in flourishing and expansion of the business are the specific amount of remuneration to be paid to each working partner or the manner of quantifying such remuneration or salary, the tax benefit implications to be followed if remuneration is paid to partners, conditions under which a partner is acclaimed to entitle remuneration from the partnership business (Scott, 1995). The agreement should differentiate between a working and a non-working partner. The clause in the agreement determining the percentage of book profit to be paid as remuneration should be specified, the timings when the salary or remuneration to be withdrawn be it monthly, quarterly or yearly should be clarified in the partnership agreement, clarification of whether the remuneration partner will be allotted fixed salary the effo rts put in by each partner should be specified. The reason why it is critical to include the salary arrangements or guaranteed payments in a written partnership agreement for two reasons. First, the salaried partner will want to have the security of knowing the agreed clauses which are clear and understood by both parties. Second, the written agreement can help to support the claim that the payments to the salaried partner were not distributions of profits (Nag et. al, 2007). This is important because the amounts paid to the salaried partner are used to reduce the taxable income of the partnership, and if the payments are treated as a distribution of net profits, these deductions will be eliminated and the partners tax liability will increase. Conclusion As per the report, it is clear that partnership is a link that is present between the people that have mutual consent and have a desire to continue the business by sharing the advantage they possess. Moreover, the partnership form of business depends upon the partnership deed and hence need to abide by the clause that is present. Going by the overall report, it can be commented that partnership form of business is relevant when their different partners wants to share their positive point in conducting the business. Hence, it is best when people have a different area of interest. It provides greater vision and the ability to deal with the scenario. References Faulkner, D. 1995, International strategic alliances: co-operating to compete, London, New York, McGraw-Hill. Grant, R.M 2010, Contemporary Strategy Analysis, Chichester, UK: John Wiley Sons. Holloway, S. S Parmigiani, A 2014, Friends and Profits Dont Mix: The Performance Implications of Repeated Partnerships, Academy of Management Journal vol. 59, no. 2, pp. 460 Huxham, C 1996, Creating collaborative advantage, London, Sage Jones, R. Noble, G. 2008, Managing the implementation of public-private partnerships, Public Money Management vol. 28, pp. 109-114. Kelman, S. 2005, Public Management Needs Help!, The Academy of Management Journal vol. 48, pp. 967-969. Marsh, C 2009, Mastering financial management, Harlow: Financial Times Prentice Hall. McLaney, E. Atrill, P 2012, Accounting, Harlow: Financial Times/Prentice Hall. Matt B Simon P 2014, Accounting and Finance for Managers, Kogan Page Limited Moncrieff, J 2014, Is strategy making a difference?, Long Range Planning Review vol. 32, no. 2, pp. 273276. Nag, R, Ham brick, D. C Chen, M.J, 2007, What is strategic management, really? Inductive derivation of a consensus definition of the field, Strategic Management Journal vol. 28, no. 9, pp. 935955 Savas, E. S 2000, Privatisation and public-private partnerships, New York, Chatham House Publishers. Scott, W. R 1995, Institutions and organizations, Thousand Oaks, Calif. ; London, Sage. Sinha, DK 2016, Partnership Firms: Definition, Features, Advantages and Disadvantages, viewed 16 May 2017 Smith, W.K, Binns, A Tushman, M.L 2010, Complex business models: Managing strategic paradoxes simultaneously, Long range planning vol. 43, no. 448-461 Svejenova, S., Planellas, M Vives, L 2010, An individual business model in the making: Achefs quest for creative freedom,Long range planning vol. 43, pp. 408-430 Teisman, G. R Klijn, E. H. 2002, Partnership arrangements: Governmental rhetoric or governance scheme?., Public Administration Review vol. 60, pp. 197-205

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