Partnership
Partnership is a form of business where two or more persons bind themselves to contribute of money, property or industry to a common fund with the intention of dividing the profits among themselves. To be in short, it is a business that form by two or more persons to share ownership.
Characteristics of a Partnership
1. Mutual Fund
It is the activity before forming a partnership. Partners must contribute a money, property or industry in order to make a common fund.
2. Division of Profits or Losses
It is the essence of the business. One partner can't acquire the entire profits of the firm. It must be share to all partners by using profits sharing ratio. However, sharing of losses is up to the partners whether the losses will be shared by all the partners. If it silent, then the losses will be split based on profit sharing ratio.
3. Co - Ownership of Contributed Assets
All assets contributed into business are owned by all the partners or co - owners in the business.
4. Mutual Agency
It is the right of each partner to act as agent on behalf of the business. With this agreement, the partner who act as agent has the power to make business decisions, such as creating a contract with a third party.
5. Limited Life
There is no forever just like in business. The life of a partnership is based on the contract if it stated the years that business will exist. It may be dissolved by the admission, death, insolvency, incapacity, withdrawal of the partner or expiration in the partnership agreement.
6. Unlimited Liability
All partners (except limited partners) are personally liable for all debts of partnership that can't pay. If one partner is insolvent, the other partners can be liable to satisfy the creditors' claims.
7. Income Taxes
Partnership does not pay the income taxes by itself. It is the partners, who will pay the income taxes on their shares in the business income. All partnerships ( except general professional partnership ) are subject to tax at the rate of 30% of taxable income.
8. Partners' Equity Account
It represents as owner's contribution to the business as well as their shares. It compose of capital account and withdrawal account.
There is no forever just like in business. The life of a partnership is based on the contract if it stated the years that business will exist. It may be dissolved by the admission, death, insolvency, incapacity, withdrawal of the partner or expiration in the partnership agreement.
6. Unlimited Liability
All partners (except limited partners) are personally liable for all debts of partnership that can't pay. If one partner is insolvent, the other partners can be liable to satisfy the creditors' claims.
7. Income Taxes
Partnership does not pay the income taxes by itself. It is the partners, who will pay the income taxes on their shares in the business income. All partnerships ( except general professional partnership ) are subject to tax at the rate of 30% of taxable income.
8. Partners' Equity Account
It represents as owner's contribution to the business as well as their shares. It compose of capital account and withdrawal account.
