Fundamentals of Partnership

Lesson

Part 1 — what a partnership is, what the Act and the deed say, capital and current accounts, and the Profit and Loss Appropriation Account.

In this lesson you will

State the features of partnership and the provisions of the Indian Partnership Act, 1932 on books of account and on money matters when the deed is silent
Prepare partners' capital and current accounts, including interest on current-account balances
Prepare the Profit and Loss Appropriation Account with interest on capital, salary, a partner's or manager's commission and reserve

Part 1 at a glance

Concept

What is a partnership?

Section 4 of the Indian Partnership Act, 1932: partnership is a relation between persons who have agreed to share the profits of a business carried on by all of them or by any of them acting for all.
Persons who enter into it are partners; together they are a firm; the business runs under the firm name.

Table of six features of partnership with an imagined bamboo-furniture firm in Kohima as the example: two or more persons, an agreement, a business, sharing of profits, mutual agency and unlimited liability
Feature	What it means	In an imagined bamboo-furniture firm in Kohima
Two or more persons	At least 2 and at most 50 partners	Neiphiu and Koushik run the workshop together
Agreement	Oral or written; the written form is the deed	They sign a deed before the first order
Business	A lawful business carried on for profit	Making and selling bamboo chairs and shelves
Sharing of profits	Profit and loss shared in an agreed ratio	They agree to share 3:2
Mutual agency	Run by all, or by any of them acting for all	Koushik's order for cane binds Neiphiu too
Unlimited liability	Partners' own property can meet the firm's debts	A supplier can claim from Neiphiu's savings

Concept

The Act on books of account and partners' rights

Unless the partners agree otherwise, the Act gives every partner these rights and duties.

Table of provisions of the Indian Partnership Act on accounts and partners' rights: true accounts under section nine, the right to take part in the business, decisions by majority, the right to inspect and copy the books, and the money rules of section thirteen
Provision of the Act (unless partners agree otherwise)	What it means
Section 9: true accounts	Partners must be just and faithful and give true accounts and full information to each other
Section 12(a): conduct of business	Every partner may take part in running the business
Section 12(c): decisions	Ordinary matters by majority; the nature of the business changes only with every partner's consent
Section 12(d): books of account	Every partner may have access to, inspect and copy any of the firm's books
Section 13: money matters	Profit sharing, remuneration and interest (next slides)

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