Rights/ duties of a partner

Rights of partners:

1. Every partner has a right to take part in the management of the business.
2. Every partner has a right to be consulted about the affairs of the partnership business.
3. Every partner has a right to inspect the books of account and have a copy of the same.
4. Every partner has a right to share the profits or losses with others in the agreed ratio.
5. If a partner has contributed a sum in excess of the agreed capital, he has a right to receive interest on such an excess at an agreed rate of interest. In case the rate of interest is not agreed, he may be paid interest @ 6% per annum.
6. In case of an emergency a partner has the right to act according to his best judgement and be indemnified for the expenses incurred by him
7. A partner has the right now to allow the admission of a new partner.
8. On giving a proper notice, a partner has the right to retire from the firm.
9. If a partner incurs expense on the business or he pays some money on behalf of the firm, that partner may get indemnified of these payments from the firm.

v  Duties (Obligations) of Partners

1. To devote time and attention to the business of the partnership.
2. To carry on the business diligently and with the greatest common advantage.
3. Not to engage in competition against the firm. If he does so, he must account for the profits made in the competing business.
4. To hold and use the property of the firm only for the firm.
5. To act within the authority.
6. To make good the loss that may have been caused by his willful neglect or breach of trust.

v  Preparation of Profit and Loss and Loss Appropriation Account

Profit & Loss Appropriation account is mere an extension of Profit Loss account. It is prepared to ascertain the net distributable profit to be credited among the partners in a partnership firm. All the entries related to interest on partners’ capital, interest on partners’ drawings, partners’ salaries or commission, amount transferred to reserve fund etc. should be recorded in this account.

Partnership Deed:

A partnership is formed by an agreement. This agreement may be oral or in writing. Though the law does not expressly require that the partnership agreement be in writing, it is desirable to have it in writing so that in case of a dispute, it may be readily referred to "A document containing the agreement in written between partners, in which the rights, duties and obligations of partners are set out in detail, is known as partnership Deed."

Where there is neither partnership deed nor express agreement or partnership deed is there but it is silent on any matter, then the relevant provisions of the Indian partnership Act, 1932, would be applicable. In the absence of any written or oral agreement, the under mentioned provisions of the Partnership Act shall apply for accounting purposes:

1. Interest on Capital: No interest is to be allowed on capitals. If under the agreement, interest is to be paid, it will be allowed only when there is a profit- in the case of a loss, no interest can be allowed.
2. Interest on Drawings: No interest is to be charged on drawings made by the partners.
3. Interest on Loan: If any partner, apart from his share of capital, advances loan to the firm, he is entitled to receive interest at the rate of 6% per annum.
4. Salary to Partner: No partner is entitled to a salary from the firm.
5. Profit-Sharing Ratio: Profit and losses are to be shared equally amongst partners irrespective of their capitals contributed to the firm.

v  Essential elements of partnership:

1.      Association of two or more persons: There should be at least two competent persons to from a partnership. The maximum number of partners in a firm carrying on banking business should not exceed ten and in any other business twenty

2.      Agreement or contract: The partnership relation is one of contractual nature. It arises from an agreement. The agreement may be express (i.e., oral or written) implied.

3.      Business: A partnership can be formed only for the purpose of carrying on a business. Business includes every trade, occupation or profession. The business to be carried on by the firm must be legal.

4.      Sharing of profits: The object of partnership must be to earn profit must be distributed among partners in an agreed ratio. The sharing of profits also includes sharing of losses.

5.      Mutual agency. The business of partnership may be carried on by all the partners or any of them acting for all. Thus, a partner is both an agent and the principal. There must be mutual agency.

	Accounting for Partnership Firms: Basic Concepts/Fundamentals

 Topics covered:

v  Introduction of Partnership

v  Preparation of Profit and Loss Appropriation Account

v  Preparation of Capital Accounts

v  Calculation of interest on drawings

v  Calculation of interest on capital

v  Calculation of salary or commission to partners

v  Calculation of Interest on Partners’ Loan to Firm

v  Calculation of Capital Ratio

v  Treatment of Past Adjustments

v  Calculation of Guarantee to a partner

v  Treatment of Joint Life Policy

v  Introduction

In spite of sole proprietary concern, partnership firms and joint stock companies own a large number of business concerns. As regards accounting, there are certain peculiarities in the accounts of partnership than those of a sole proprietorship. The main peculiarities regarding to accounting of partnership firm, for example, relate to distribution of profits, the maintenance of the capital accounts, etc. In this chapter, we intend to make you understand the same, i.e., the fundamentals of partnership accounting.

v  Meaning of Partnership:

When two or more persons enter into an agreement for setting up a business, running it and sharing its profits and losses, it is a case of a partnership. According to Sec.4 of The Indian Partnership Act, 1932, defines the partnership as follows: “Partnership is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all.” The persons who have entered into a partnership with one another are called individually ‘partners’ and collectively a ‘firm’.

There are three types of partners:

1. Active Partners
2. Sleeping Partners
3. Others: Nominal and Partners by holding out.

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