Non-current assets are long-term investments that are not easily converted into cash within an accounting year. They are required for the long term in the business. They have a useful life of more than an accounting year. Non-current assets can be fixed assets and intangible assets. Fixed assets areRead more
Non-current assets are long-term investments that are not easily converted into cash within an accounting year. They are required for the long term in the business. They have a useful life of more than an accounting year.
Non-current assets can be fixed assets and intangible assets. Fixed assets are tangible assets that can be seen and touched. Whereas, intangible assets are those assets that can not be seen and touched.
You can correlate examples of Non-Current Assets with tangible and intangible assets as mentioned below:
Land and building – They are fixed assets that will give long-term benefits and will be classified as noncurrent assets.
Plant and Machinery – They are tangible assets will give future benefits and are thus mentioned under noncurrent assets.
Office Equipment – They are tangible assets that will give future economic benefits to the company, and comes under noncurrent assets.
Vehicles – They are tangible assets that will give long-term benefits, and will be classified as noncurrent assets.
Furniture – They are also tangible assets that will give future benefits and are classified as non-current assets.
Trademarks – These are intangible assets that will not be easily converted into cash and will be classified as noncurrent assets.
Goodwill – They are intangible assets that can’t be easily converted into cash, and are classified as non-current assets.
Patents – They are intangible assets that will not be converted into cash within an accounting period, and are classified as non-current assets.
Copyrights – They are intangible assets that will not be converted into cash within an accounting period, and are classified as non-current assets.
Long-term Investments – They are long-term investments that will not be easily converted into cash within an accounting period and are classified as non-current assets.
Non-current Assets = Total Liabilities – Current Assets
Current Assets are the assets that will be converted into cash within an accounting year. They include cash, bank, debtors, etc.
Shareholder's Equity Meaning - Shareholder's Equity is the amount invested into the Company. It represents the Net worth of the Company. It is also where the owners have the claim on the Assets after the Debts are settled. It Calculation of Shareholder's Equity Method 1 Shareholder's Equity = TotalRead more
Shareholder’s Equity
Meaning – Shareholder’s Equity is the amount invested into the Company. It represents the Net worth of the Company. It is also where the owners have the claim on the Assets after the Debts are settled. It
Calculation of Shareholder’s Equity
Method 1
Shareholder’s Equity = Total Assets – Total Liabilities
Straight Line Depreciation Journal Entry Straight-line depreciation refers to the diminishing value of assets over the life of the asset. In other words, the cost of the asset spreads evenly over the useful life of the assets. The salvage value or Residual value of an asset means the estimated valueRead more
Straight Line Depreciation Journal Entry
Straight-line depreciation refers to the diminishing value of assets over the life of the asset. In other words, the cost of the asset spreads evenly over the useful life of the assets.
The salvage value or Residual value of an asset means the estimated value of the asset at the end of its useful life.
The depreciation can also be charged with another method like Written Down Value (WDV) Method.
Formula
Depreciation per annum = ( Cost of asset – Salvage Value) / Useful Life
The journal entry for the depreciation is:
JOURNAL ENTRIES
Depreciation on Asset A/C DR.
To Asset A/C
(Being depreciation charged on asset)
Now let us understand this with an example, suppose XYZ Ltd. has an asset of value 90,000 with a useful life of 3 years. The company uses the straight-line method of depreciation to depreciate the asset in its book.
So, the depreciation per annum would be calculated as:-
= 90,000/3
= 30,000
In Year 1, the depreciation will be charged as 30,000 for this year. It will be debited to the depreciation account and credited to the asset account. Thus, the value of the asset at the end of year 1 will be 60,000 (90,000-30,000).
JOURNAL ENTRIES
DR
CR
Depreciation on Asset A/C 30,000
To Asset A/C 30,000
(being depreciation charged on asset)
In Year 2, the depreciation will be charged as 30,000. The entry would be the same as the previous year. The value of the asset at the end of year 2 will be 30,000 (60,000-30,000).
JOURNAL ENTRIES
DR
CR
Depreciation on Asset A/C 30,000
To Asset A/C 30,000
(being depreciation charged on asset)
At last in Year 3, the depreciation will be charged 30,000. The entry would be the same. The value of the asset at the end of year 3 will be Nil (30,000- 30,000).
JOURNAL ENTRIES
DR
CR
Depreciation on Asset A/C 30,000
To Asset A/C 30,000
(being depreciation charged on asset)
The depreciation will be charged to the profit and loss account for the year as it is an expense for the company.
The entries will be posted into depreciation account as mentioned:
When the Accumulated depreciation account is not maintained, the journal entry for vehicle depreciation shall be Particulars Debit Credit Depreciation a/c Dr. (xxx) To Vehicle a/c (xxx) (Being DepreciationRead more
Whenthe Accumulated depreciation account is not maintained, the journal entry for vehicle depreciation shall be
Particulars
Debit
Credit
Depreciation a/c Dr.
(xxx)
To Vehicle a/c
(xxx)
(Being Depreciation charge on Vehicle made)
For example, let us assume that a vehicle (Bike) was purchased on 1st April 2019 with INR. 2,50,000, the rate of depreciation is 15% and also the Company follows the straight-line method of calculating depreciation.
Then the journal entries shall be,
The depreciation charge for the 1st Year
Date
Particulars
Debit
Credit
31-03-2020
Depreciation a/c Dr.
37,500
To Vehicle a/c
37,500
(Being Depreciation made on Vehicle)
The depreciation charge for the 2nd Year
Date
Particulars
Debit
Credit
31-03-2021
Depreciation a/c Dr.
37,500
To Vehicle a/c
37,500
(Being Depreciation made on Vehicle)
The depreciation charge for the 3rd Year
Date
Particulars
Debit
Credit
31-03-2022
Depreciation a/c Dr.
37,500
To Vehicle a/c
37,500
(Being Depreciation made on Vehicle)
The respective ledger accounts for all three years are given below:
Whenthe Accumulated depreciation account is maintained, the journal entry for vehicle depreciation shall be
Particulars
Debit
Credit
Depreciation a/c Dr.
(xxx)
To Accumulated depreciation a/c
(xxx)
(Being Depreciation charge on Vehicle made)
Taking the above said example,
The depreciation charge for the 1st Year
Date
Particulars
Debit
Credit
31-03-2020
Depreciation a/c Dr.
37,500
To accumulated depreciation a/c
37,500
(Being Depreciation made on Vehicle)
The depreciation charge for the 2nd Year
Date
Particulars
Debit
Credit
31-03-2021
Depreciation a/c Dr.
37,500
To accumulated depreciation a/c
37,500
(Being Depreciation made on Vehicle)
The depreciation charge for the 3rd Year
Date
Particulars
Debit
Credit
31-03-2021
Depreciation a/c Dr.
37,500
To accumulated depreciation a/c
37,500
(Being Depreciation made on Vehicle)
The respective ledger accounts for all three years are given below:
Partnership Firm Persons who have entered into a partnership with one another to carry on a business are individually called “Partners“; collectively called a “Partnership Firm”; and the name under which their business is carried on is called the “Firm Name” In simple words, A partnership is an agreRead more
Partnership Firm
Persons who have entered into a partnership with one another to carry on a business are individually called “Partners“; collectively called a “Partnership Firm”; and the name under which their business is carried on is called the “Firm Name”
In simple words, A partnership is an agreement between two or more people who comes together to run a business on a partnership deed, which is called a Partnership firm. A Partnership Deed is a written agreement between partners who are willing to form a Partnership Firm. It is also called a Partnership Agreement.
It has no separate legal entity which cannot be separated from the members. It is merely a collective name given to the individuals composing it. This means, a partnership firm cannot hold property in its name, and neither it can sue nor be sued by others.
Contents of a Partnership Deed
A Partnership Deed shall mainly include the following contents:
Name of the Partnership firm
Address of the Partnership firm
Details of all the Partners
Date of commencement of the Business
The amount of capital contributed by each of the partners forming the Partnership firm
The Profit sharing ratio (The Business profit shared among the partners on a ratio basis)
The rate or amount of Interest on Capital & the rate or amount of Interest on drawings to each partner respectively.
The salary is payable to each of the partners of the firm.
The rights, duties, and power of each partner of the firm.
The duration of the existence of the firm
Types of Partners
The following are the various types o partners
Working partner or Active partner
Sleeping partner
Limited partner
Partner in profit only
Nominal or quasi partner
Minor as a partner
Types of Partnership Firms
There are four types of partnership which are as below.
General Partnership
Limited Partnership
Partnership at will
Particular Partnership
Essential characteristics of a partnership firm
Two or More persons: There must be at least two persons to form a partnership. A person cannot enter into a partnership with himself. The maximum number of persons in a partnership should not exceed 50.
Agreement between partners: There must be an agreement between the parties in a partnership. The relation of partnership arises from the formation of a contract i.e., Partnership deed.
Mutual Agency: Partnership business can be carried on by all the partners or by any of them acting on behalf of the others. in simple words, every partner is an agent to the other partners and of the form. Each partner is liable for acts performed by other partners on behalf of the firm.
Registration of Firm: Registration of a partnership firm is not compulsory under the Act. The only document or even an oral agreement among partners required is the ‘partnership deed’ to bring the partnership into existence.
Unlimited Liability:the liability of the partners is unlimited for the debts of the firm. In case the assets of the firm are insufficient to pay the debts in full, the personal property of each partner can be attached to pay the creditors of the firm.
Non-Transferability of interest: there is a restriction in the transfer of shares of profits of the partnership without the prior consent of all other partners.
Sharing of profits: The profits must be distributed among the partners in an agreed ratio. Similarly, losses should be shared among the partners.
Lawful Business: The business carried on by the partners must be lawful. Illegal acts such as theft, dacoity, smuggling, etc., cannot be called partnerships.
Utmost good faith: A partner must observe utmost good faith in all dealings with his co-partners. He must render true accounts and make no secret profits from the business.
Types of Partnership A partnership is an agreement between two or more people who comes together to run a business. There are different types of partnerships formed with different perspectives as mentioned: General Partnership Limited Partnership Limited Liability Partnership Partnership at will ParRead more
Types of Partnership
A partnership is an agreement between two or more people who comes together to run a business.
There are different types of partnerships formed with different perspectives as mentioned:
General Partnership
Limited Partnership
Limited Liability Partnership
Partnership at will
Partnership for a fixed term
General Partnership
It refers to the partnership where all partners actively manage the business and have unlimited legal liability. Generally, all the partners share equal profit and loss in the business and are also equally liable for the outsider’s loan.
All the partners are responsible for the business’s day-to-day operations and managerial responsibility.
If the partners decided to share profit and loss in any other ratio (unequal ratio), then they have to disclose this in a agreement called a partnership deed.
In this, debts are equally borne by selling the partners assets of all the partners. In case of dissolution, if the partnership firm has taken a loan from outsiders and does not have sufficient funds to repay the amount then the payment can be done by selling the partner’s personal property.
It can be formed by signing the partnership agreement that would be proved as evident in case of disagreement among partners. For instance, if any partner dies or leaves the firm then they should follow the content of the agreement.
A general partnership does not pay the tax instead the partners personally report their income tax return.
Limited Partnership
In a Limited partnership, all the partners contribute capital but not necessarily all of them manage the business.
The old partners add a new partner into the partnership to fulfill the financial needs of the business i.e. for capital. The rights of decision-making are issued to new partners on the basis of their contribution of capital. The new partner is not associated with day-to-day business activities. He /She is called a limited partner or silent partner.
The liability partner has limited liability to the extent of his capital. The personal assets of the limited partner can not be used for the payment of the firm’s liability.
Limited Liability Partnership
It is a more popular type of partnership in today’s world. To form an LLP you have to register under the Limited Liability Partnership Act, 2008.
In this, all the partners have limited liability to the extent of the capital investment in the business. The personal assets of the partners can not be used to discharge the liability of the partnership.
A Minimum of 2 partners are required to form an LLP. However, no maximum limit on a number of partners.
It has also some features of the company. It has a separate legal entity. The LLP can buy property in its own name and sue and be sued in its name.
LLPs are often formed by professionals like Chartered Accountants, doctors and Legal firms.
Features
It has a separate legal entity.
The cost of forming is low.
It requires less compliance and regulations.
Minimum two partners are required, no limit on the maximum number of partners.
The partners has limited liability.
Partnership at will
Partnership at will is a form of business where there is no fixed tenure of the partnership. That means there is no expiration of the partnership. But if the partnership is formed for a fixed duration and its period has expired and still continues then it will become a partnership at will.
Partnership for a fixed term
The partnership is created for a fixed duration of the interval. After the expiration of such duration, the partnership may come to an end.
If the partners share profit and loss even after the expiration of the duration of the partnership then it will become a partnership at will.
Meaning of Partnership Deed A Partnership Deed is a written agreement between partners who are willing to form a Partnership Firm. It is also called as a Partnership Agreement. Contents of a Partnership Deed A Partnership Deed shall mainly include the following contents: Name of the Partnership firmRead more
Meaning of Partnership Deed
A Partnership Deed is a written agreement between partners who are willing to form a Partnership Firm. It is also called as a Partnership Agreement.
Contents of a Partnership Deed
A Partnership Deed shall mainly include the following contents:
Name of the Partnership firm
Address of the Partnership firm
Details of all the Partners
Date of commencement of the Business
The amount of capital contributed by each of the partners forming the Partnership firm
The Profit sharing ratio (The Business profit shared among the partners on a ratio basis)
The rate or amount of Interest on Capital & the rate or amount of Interest on drawings to each partner respectively.
The salary payable to each of the partners of the firm.
The rights, duties, and power of each partner of the firm.
The duration of the existence of the firm
Importance of Partnership Deed
Proper regulation of duties, liabilities, and rights of the partners are made in the partnership deed and hence there cannot be any issue during the course of the business.
There can be no disputes between the partners upon Profit sharing, salary, commission, interest on capital, and interest on drawings.
A partnership Deed acts as Legal proof for the conduct of the business and is used for many other registrations such as GST registration, and other related purposes.
Format of a Partnership Deed
The Partnership Deed shall originally be executed on an Indian Non-Judicial stamp paper.
The format of the Partnership deed is given below with an assumption that 4 partners are forming the Partnership.
PARTNERSHIP DEED
This deed of partnership is made on [Date, Month, Year] between:
1. [First Partner’s Name], [Son/Daughter] of [Mr. Father’s Name], residing at [Address Line 1, Address Line 2, City, State, Pin Code] hereinafter referred to as FIRST PARTNER.
2. [Second Partner’s Name], [Son/Daughter] of [Mr. Father’s Name], residing at [Address Line 1, Address Line 2, City, State, Pin Code] hereinafter referred to as SECOND PARTNER.
3. [Third Partner’s Name], [Son/Daughter] of [Mr. Father’s Name], residing at [Address Line 1, Address Line 2, City, State, Pin Code] hereinafter referred to as THIRD PARTNER.
4. [Fourth Partner’s Name], [Son/Daughter] of [Mr. Father’s Name], residing at [Address Line 1, Address Line 2, City, State, Pin Code] hereinafter referred to as FOURTH PARTNER.
Whereas, the parties hereto have agreed to commence business in partnership and it is expedient to have a written instrument of partnership. Now, this partnership deed witnesses as follows:
1. BUSINESS ACTIVITY
The parties hereto have mutually agreed to carry on the business of [Description of Business Activity Proposed].
2. PLACE OF BUSINESS
The principal place of the partnership business will be situated at [Address Line 1, Address Line 2, City, State, Pin Code]
3. DURATION OF PARTNERSHIP
The duration of the partnership will be at will.
4. CAPITAL OF THE FIRM
Initially, the capital of the firm shall be Rs. [Total Partners Contribution].
5. PROFIT SHARING RATIO
The profit or loss of the firm shall be shared equally among all the partners and transferred to the partner’s current account.
6. MANAGEMENT
The [First Partner] of the firm shall be Managing Partner and he will look after all the day-to-day transactions of the firm and any legal activities in the name of the firm and the remaining partners shall cooperate to do so.
7. OPERATION OF BANK ACCOUNTS
The firm shall open a current account in the name of [Partnership Firm Name] at any bank and such account shall be operated by [First Partner] and [Second Partner] jointly as declared from time to time to the Banks.
8. BORROWING
The written consent of all Partners will be required for the partnership to avail credit facilities from any financial institution.
9. ACCOUNTS
The firms shall regularly maintain in the ordinary course of business, true and correct accounts of all its transactions and also of all its assets and liabilities, the property books of account, which shall ordinarily be kept at the firm’s place of business. The accounting year shall be the financial year from 1st April onwards and the balance sheet shall be properly audited and the same shall be signed by all the Partners. Every Partner shall have access to the books and the right to verify their correctness.
10. RETIREMENT
If any partner shall at any time during the subsistence of the partnership, be desirous of retiring from the firm, it shall be competent from his to do so, provided he shall give at least one calendar month’s notice of his intention of doing so. The remaining partner shall pay the retiring partner or his legal representatives of the deceased partner, the purchase money of his share in the assets of the firm.
11. DEATH OF PARTNER
In the event of the death of any partners, one of the legal representatives of the deceased partner shall become the partner of the firm and in the event, the legal representative shows their denial to point the firm, they shall be paid part of the purchase amount calculated as on the date of the death of the partner.
12. ARBITRATION
Whenever there by any difference of opinion or any dispute between the partners shall refer the same to the arbitration of one person. The decision of the arbitration so nominated shall be final and binding on all partners, such arbitration proceedings shall be governed by Indian Arbitration Act, which is in force.
In witness whereof, this deed of partnership is signed sealed, and delivered this [Day, Month, Year] at [City, State]:
FIRST PARTNER SECOND PARTNER
[Address Line 1] [Address Line 1]
[Address Line 2] [Address Line 2]
[City, State, Pin Code] [City, State, Pin Code]
THIRD PARTNER FOURTH PARTNER
[Address Line 1] [Address Line 1]
[Address Line 2] [Address Line 2]
[City, State, Pin Code] [City, State, Pin Code]
WITNESS ONE WITNESS TWO
[Address Line 1] [Address Line 1]
[Address Line 2] [Address Line 2]
[City, State, Pin Code] [City, State, Pin Code]
What are some examples of non-current assets?
Non-current assets are long-term investments that are not easily converted into cash within an accounting year. They are required for the long term in the business. They have a useful life of more than an accounting year. Non-current assets can be fixed assets and intangible assets. Fixed assets areRead more
Non-current assets are long-term investments that are not easily converted into cash within an accounting year. They are required for the long term in the business. They have a useful life of more than an accounting year.
Non-current assets can be fixed assets and intangible assets. Fixed assets are tangible assets that can be seen and touched. Whereas, intangible assets are those assets that can not be seen and touched.
You can correlate examples of Non-Current Assets with tangible and intangible assets as mentioned below:
Land and building – They are fixed assets that will give long-term benefits and will be classified as noncurrent assets.
Plant and Machinery – They are tangible assets will give future benefits and are thus mentioned under noncurrent assets.
Office Equipment – They are tangible assets that will give future economic benefits to the company, and comes under noncurrent assets.
Vehicles – They are tangible assets that will give long-term benefits, and will be classified as noncurrent assets.
Furniture – They are also tangible assets that will give future benefits and are classified as non-current assets.
Trademarks – These are intangible assets that will not be easily converted into cash and will be classified as noncurrent assets.
Goodwill – They are intangible assets that can’t be easily converted into cash, and are classified as non-current assets.
Patents – They are intangible assets that will not be converted into cash within an accounting period, and are classified as non-current assets.
Copyrights – They are intangible assets that will not be converted into cash within an accounting period, and are classified as non-current assets.
Long-term Investments – They are long-term investments that will not be easily converted into cash within an accounting period and are classified as non-current assets.
Non-current Assets = Total Liabilities – Current Assets
Current Assets are the assets that will be converted into cash within an accounting year. They include cash, bank, debtors, etc.
BALANCE SHEET
See lessWhat is shareholder’s equity?
Shareholder's Equity Meaning - Shareholder's Equity is the amount invested into the Company. It represents the Net worth of the Company. It is also where the owners have the claim on the Assets after the Debts are settled. It Calculation of Shareholder's Equity Method 1 Shareholder's Equity = TotalRead more
Shareholder’s Equity
Meaning – Shareholder’s Equity is the amount invested into the Company. It represents the Net worth of the Company. It is also where the owners have the claim on the Assets after the Debts are settled. It
Calculation of Shareholder’s Equity
Method 1
Shareholder’s Equity = Total Assets – Total Liabilities
Method 2
Shareholder’s Equity = Share Capital + Retained Earnings – Treasury Stock/Treasury Shares
Components of the Shareholder’s Equity
From the above Method 1, it can be understood that shareholder’s equity comprises of
Net Assets = Current Assets + Non-current Assets, reduced by
Net liabilities = Current liabilities + Long-term liabilities
where Long-term liabilities = Long-term debts + Deferred long-term liabilities + Other liabilities
Also from the method 2,
Share Capital = Outstanding shares + Additional Paid-up share capital
Retained Earnings are the sum of the company’s earnings after paying the dividends
Treasury stocks = Shares repurchased by the company
Example of Shareholder’s Equity
The shareholder’s Equity is represented in the Balance Sheet as below;
See lessWhat is straight line depreciation journal entry?
Straight Line Depreciation Journal Entry Straight-line depreciation refers to the diminishing value of assets over the life of the asset. In other words, the cost of the asset spreads evenly over the useful life of the assets. The salvage value or Residual value of an asset means the estimated valueRead more
Straight Line Depreciation Journal Entry
Straight-line depreciation refers to the diminishing value of assets over the life of the asset. In other words, the cost of the asset spreads evenly over the useful life of the assets.
The salvage value or Residual value of an asset means the estimated value of the asset at the end of its useful life.
The depreciation can also be charged with another method like Written Down Value (WDV) Method.
Formula
Depreciation per annum = ( Cost of asset – Salvage Value) / Useful Life
The journal entry for the depreciation is:
JOURNAL ENTRIES
Now let us understand this with an example, suppose XYZ Ltd. has an asset of value 90,000 with a useful life of 3 years. The company uses the straight-line method of depreciation to depreciate the asset in its book.
So, the depreciation per annum would be calculated as:-
= 90,000/3
= 30,000
In Year 1, the depreciation will be charged as 30,000 for this year. It will be debited to the depreciation account and credited to the asset account. Thus, the value of the asset at the end of year 1 will be 60,000 (90,000-30,000).
JOURNAL ENTRIES
In Year 2, the depreciation will be charged as 30,000. The entry would be the same as the previous year. The value of the asset at the end of year 2 will be 30,000 (60,000-30,000).
At last in Year 3, the depreciation will be charged 30,000. The entry would be the same. The value of the asset at the end of year 3 will be Nil (30,000- 30,000).
JOURNAL ENTRIES
CR
The depreciation will be charged to the profit and loss account for the year as it is an expense for the company.
The entries will be posted into depreciation account as mentioned:
See lessWhat is vehicle depreciation journal entry?
When the Accumulated depreciation account is not maintained, the journal entry for vehicle depreciation shall be Particulars Debit Credit Depreciation a/c Dr. (xxx) To Vehicle a/c (xxx) (Being DepreciationRead more
When the Accumulated depreciation account is not maintained, the journal entry for vehicle depreciation shall be
For example, let us assume that a vehicle (Bike) was purchased on 1st April 2019 with INR. 2,50,000, the rate of depreciation is 15% and also the Company follows the straight-line method of calculating depreciation.
Then the journal entries shall be,
The depreciation charge for the 1st Year
The depreciation charge for the 2nd Year
The depreciation charge for the 3rd Year
The respective ledger accounts for all three years are given below:
When the Accumulated depreciation account is maintained, the journal entry for vehicle depreciation shall be
Taking the above said example,
The depreciation charge for the 1st Year
The depreciation charge for the 2nd Year
The depreciation charge for the 3rd Year
The respective ledger accounts for all three years are given below:
See lessWhat are essential characteristics of a partnership firm?
Partnership Firm Persons who have entered into a partnership with one another to carry on a business are individually called “Partners“; collectively called a “Partnership Firm”; and the name under which their business is carried on is called the “Firm Name” In simple words, A partnership is an agreRead more
Partnership Firm
Persons who have entered into a partnership with one another to carry on a business are individually called “Partners“; collectively called a “Partnership Firm”; and the name under which their business is carried on is called the “Firm Name”
In simple words, A partnership is an agreement between two or more people who comes together to run a business on a partnership deed, which is called a Partnership firm. A Partnership Deed is a written agreement between partners who are willing to form a Partnership Firm. It is also called a Partnership Agreement.
It has no separate legal entity which cannot be separated from the members. It is merely a collective name given to the individuals composing it. This means, a partnership firm cannot hold property in its name, and neither it can sue nor be sued by others.
Contents of a Partnership Deed
A Partnership Deed shall mainly include the following contents:
Types of Partners
The following are the various types o partners
Types of Partnership Firms
There are four types of partnership which are as below.
Essential characteristics of a partnership firm
See lessWhat are the types of partnership?
Types of Partnership A partnership is an agreement between two or more people who comes together to run a business. There are different types of partnerships formed with different perspectives as mentioned: General Partnership Limited Partnership Limited Liability Partnership Partnership at will ParRead more
Types of Partnership
A partnership is an agreement between two or more people who comes together to run a business.
There are different types of partnerships formed with different perspectives as mentioned:
General Partnership
Limited Partnership
Limited Liability Partnership
Partnership at will
Partnership for a fixed term
General Partnership
It refers to the partnership where all partners actively manage the business and have unlimited legal liability. Generally, all the partners share equal profit and loss in the business and are also equally liable for the outsider’s loan.
All the partners are responsible for the business’s day-to-day operations and managerial responsibility.
If the partners decided to share profit and loss in any other ratio (unequal ratio), then they have to disclose this in a agreement called a partnership deed.
In this, debts are equally borne by selling the partners assets of all the partners. In case of dissolution, if the partnership firm has taken a loan from outsiders and does not have sufficient funds to repay the amount then the payment can be done by selling the partner’s personal property.
It can be formed by signing the partnership agreement that would be proved as evident in case of disagreement among partners. For instance, if any partner dies or leaves the firm then they should follow the content of the agreement.
A general partnership does not pay the tax instead the partners personally report their income tax return.
Limited Partnership
In a Limited partnership, all the partners contribute capital but not necessarily all of them manage the business.
The old partners add a new partner into the partnership to fulfill the financial needs of the business i.e. for capital. The rights of decision-making are issued to new partners on the basis of their contribution of capital. The new partner is not associated with day-to-day business activities. He /She is called a limited partner or silent partner.
The liability partner has limited liability to the extent of his capital. The personal assets of the limited partner can not be used for the payment of the firm’s liability.
Limited Liability Partnership
It is a more popular type of partnership in today’s world. To form an LLP you have to register under the Limited Liability Partnership Act, 2008.
In this, all the partners have limited liability to the extent of the capital investment in the business. The personal assets of the partners can not be used to discharge the liability of the partnership.
A Minimum of 2 partners are required to form an LLP. However, no maximum limit on a number of partners.
It has also some features of the company. It has a separate legal entity. The LLP can buy property in its own name and sue and be sued in its name.
LLPs are often formed by professionals like Chartered Accountants, doctors and Legal firms.
Features
Partnership at will
Partnership at will is a form of business where there is no fixed tenure of the partnership. That means there is no expiration of the partnership. But if the partnership is formed for a fixed duration and its period has expired and still continues then it will become a partnership at will.
Partnership for a fixed term
The partnership is created for a fixed duration of the interval. After the expiration of such duration, the partnership may come to an end.
If the partners share profit and loss even after the expiration of the duration of the partnership then it will become a partnership at will.
See lessWhat do you mean by partnership deed?
Meaning of Partnership Deed A Partnership Deed is a written agreement between partners who are willing to form a Partnership Firm. It is also called as a Partnership Agreement. Contents of a Partnership Deed A Partnership Deed shall mainly include the following contents: Name of the Partnership firmRead more
Meaning of Partnership Deed
A Partnership Deed is a written agreement between partners who are willing to form a Partnership Firm. It is also called as a Partnership Agreement.
Contents of a Partnership Deed
A Partnership Deed shall mainly include the following contents:
Importance of Partnership Deed
Format of a Partnership Deed
The Partnership Deed shall originally be executed on an Indian Non-Judicial stamp paper.
The format of the Partnership deed is given below with an assumption that 4 partners are forming the Partnership.
PARTNERSHIP DEED
This deed of partnership is made on [Date, Month, Year] between:
1. [First Partner’s Name], [Son/Daughter] of [Mr. Father’s Name], residing at [Address Line 1, Address Line 2, City, State, Pin Code] hereinafter referred to as FIRST PARTNER.
2. [Second Partner’s Name], [Son/Daughter] of [Mr. Father’s Name], residing at [Address Line 1, Address Line 2, City, State, Pin Code] hereinafter referred to as SECOND PARTNER.
3. [Third Partner’s Name], [Son/Daughter] of [Mr. Father’s Name], residing at [Address Line 1, Address Line 2, City, State, Pin Code] hereinafter referred to as THIRD PARTNER.
4. [Fourth Partner’s Name], [Son/Daughter] of [Mr. Father’s Name], residing at [Address Line 1, Address Line 2, City, State, Pin Code] hereinafter referred to as FOURTH PARTNER.
Whereas, the parties hereto have agreed to commence business in partnership and it is expedient to have a written instrument of partnership. Now, this partnership deed witnesses as follows:
1. BUSINESS ACTIVITY
The parties hereto have mutually agreed to carry on the business of [Description of Business Activity Proposed].
2. PLACE OF BUSINESS
The principal place of the partnership business will be situated at [Address Line 1, Address Line 2, City, State, Pin Code]
3. DURATION OF PARTNERSHIP
The duration of the partnership will be at will.
4. CAPITAL OF THE FIRM
Initially, the capital of the firm shall be Rs. [Total Partners Contribution].
5. PROFIT SHARING RATIO
The profit or loss of the firm shall be shared equally among all the partners and transferred to the partner’s current account.
6. MANAGEMENT
The [First Partner] of the firm shall be Managing Partner and he will look after all the day-to-day transactions of the firm and any legal activities in the name of the firm and the remaining partners shall cooperate to do so.
7. OPERATION OF BANK ACCOUNTS
The firm shall open a current account in the name of [Partnership Firm Name] at any bank and such account shall be operated by [First Partner] and [Second Partner] jointly as declared from time to time to the Banks.
8. BORROWING
The written consent of all Partners will be required for the partnership to avail credit facilities from any financial institution.
9. ACCOUNTS
The firms shall regularly maintain in the ordinary course of business, true and correct accounts of all its transactions and also of all its assets and liabilities, the property books of account, which shall ordinarily be kept at the firm’s place of business. The accounting year shall be the financial year from 1st April onwards and the balance sheet shall be properly audited and the same shall be signed by all the Partners. Every Partner shall have access to the books and the right to verify their correctness.
10. RETIREMENT
If any partner shall at any time during the subsistence of the partnership, be desirous of retiring from the firm, it shall be competent from his to do so, provided he shall give at least one calendar month’s notice of his intention of doing so. The remaining partner shall pay the retiring partner or his legal representatives of the deceased partner, the purchase money of his share in the assets of the firm.
11. DEATH OF PARTNER
In the event of the death of any partners, one of the legal representatives of the deceased partner shall become the partner of the firm and in the event, the legal representative shows their denial to point the firm, they shall be paid part of the purchase amount calculated as on the date of the death of the partner.
12. ARBITRATION
Whenever there by any difference of opinion or any dispute between the partners shall refer the same to the arbitration of one person. The decision of the arbitration so nominated shall be final and binding on all partners, such arbitration proceedings shall be governed by Indian Arbitration Act, which is in force.
In witness whereof, this deed of partnership is signed sealed, and delivered this [Day, Month, Year] at [City, State]:
FIRST PARTNER SECOND PARTNER
[Address Line 1] [Address Line 1]
[Address Line 2] [Address Line 2]
[City, State, Pin Code] [City, State, Pin Code]
THIRD PARTNER FOURTH PARTNER
[Address Line 1] [Address Line 1]
[Address Line 2] [Address Line 2]
[City, State, Pin Code] [City, State, Pin Code]
WITNESS ONE WITNESS TWO
[Address Line 1] [Address Line 1]
See less[Address Line 2] [Address Line 2]
[City, State, Pin Code] [City, State, Pin Code]