Nature of Partnerships Essay

Nature of Partnerships When starting a melody, it tail be with a sole proprietorship, a married personship, or as a company. A league is the most popular and the easiest to form. Partnerships combine one-on-one talents and skills together for a hopefully successful stemma enterprise venture. opus has realized that it is easier to do something with the help of others than singly. Partners, also, provide a greater notice of obtaining equity crown for their melody venture, while sharing the risks that go along with a rapidly growing business.There are basically ternary types of better halfships the full general artnership, the limited partnership, and the limited liability partnership. This paper discusses the general partnership. The exposition of a partnership is the association of two or more persons to hold out on as co-owners of a business for profit . Partnerships whitethorn be formed as a formal accord or conversationally with a handshake. Either way, a partnersh ip agreement should be compose up with all the aspects of the partnership covered.Once the partnership agreement is switch out and agreed on by all partners, each partner will need to sign stating they are in agreement. A artnership agreement helps to alleviate any conflicts that whitethorn arise at any afterlife date. When accounting for a partnership, it will depend on the accounting order stated in the partnership agreement. If any noncash assets were contributed, these will need to be assigned a fair value. Any noncash assets brought to the partnership are the prop of the partnership . Each partner investing working capital will expect to be agreed upon by all partners.This investment will get a line the proportionality or percentage of shed light on profit or spill to be divided between each partner. If on that point is no dimension or ercentage stated in the partnership agreement, then everything is divided equally. When linguistic context up the accounting for the business, most accounting methods have multiple accounts for each partner. These accounts are the capital account, which shows the initial investment of each partner, the drawing account, presentation any withdrawals taken over a course of studys time, and the loan account, where partners can take a loan from the business.The capital account can be maintained in two different ways the fluctuating capital method or the fixed capital method . The division of net profit equally. To account for this division, say S, T, and U decided to set up a partnership. S contributes $40,000, T contributes $30,000, and U contributes $30,000. This would be a ratio of 433. The total contributed to the partnership is $100,000. Profit for the first year is $300,000. Because the ratio is 433, Ss net capital would be $120,000. T and Us net capital would be $90,000 each, for a total of $300,000.If the partnership decides to add a partner, whatever was determined in the partnership agreement will dete rmine what steps to take for adding this spic-and-span partner. Adding a new partner normally adds profitability. If the partners decide to cease operations, there are two alternatives to help them decide which approach is better for the business liquidation or looseness. Liquidation refers to the distinguish sale of the business assets and dissolution refers to the closure of a business, often on voluntary terms of the business owner. Liquidation means that the business is closing its doors and liquidating all noncash assets and liabilities. Dissolution may mean that the partnership is dissolving and a new partnership, another partnership or business is buying out the business, or the business is dissolving. When considering dissolution, there are two types, a technical dissolution and a general dissolution . A technical dissolution is when there is a change in the composition of the business. A general dissolution is a complete dissolution or winding up of the partnership and t he business.The dissolution may result with a mutual agreement of all partners, a partner being served notice, a court order, fraud, misrepresentation, or illegal activity, or where the business is not making a profit. Whether liquidating or winding up a business, transactions to process are the collection of receivables, conversion of oncash assets to cash, payments to creditors, liabilities closed out, and the stay distribution of net balance to the partners, in cash . When starting a business with a partnership, it is with the intent purpose of longevity.