Term Paper: Accounting for Partnerships Advanced

Pages: 7 (2294 words)  ·  Bibliography Sources: 3  ·  Level: College Senior  ·  Topic: Business  ·  Buy This Paper

SAMPLE EXCERPT:

[. . .] While establishing a partnership firm, a Partnership Deed is also prepared and signed by all the partners and contains all the particulars and the mandatory rules and regulations for the firm, the duties and responsibilities of the partners, methods to be followed for the admission and withdrawal of partners, actions for dispute resolution, and the liquidation process of the firm (Clifford & Warner, 2008).

Operations of Partnership Business:

Partnership business is not operated as a separate legal entity; it is a kind of joint ownership of different partners who get together to establish a common business and earn profits. The Management functions of partnership are in the hands of the partners; who may either perform these functions themselves or otherwise hire professionally competent outsiders for this purpose. Once the partnership business is commenced, the admission and withdrawal of partners can happen in the business. Partners must keep their aim high so that they can support the firm's business when some partners are leaving them for good causes or due to conflicts. A partnership remains operative unless partners decide to terminate it upon the completion of their specific project or accomplishment of their common objective (Needles, Powers, & Crosson, 2011). Partners can be engaged in any type of business activity which is allowed by the local Laws and Regulations; however, they have to follow the marketing and business ethics while promoting their business. The profits and losses of the firm must be distributed among partners at pre-agreed ratios. Some partners may get exemption from bearing losses if they provide additional financial or non-financial benefits or services to the firm.

Liquidation of Partnership Business:

The liquidation of a partnership may be done with or without the notice of the Court. The Court declares the liquidation of the firm if the Court Panel feels that the partners have failed to run the partnership firm in an effective manner. It may be due to the misrepresentation of facts, fraudulent activity with a third party, breach of agreement, misuse of decision making powers, exploitation of Law, or any other type of misconduct by one or all of the partners (Warren, Reeve, & Duchac, 2012). A partnership firm may also be liquidated without any notice or interference of the Court; it is solely based on a mutual decision of all the partners. They may decide to liquidate the firm if they think this relationship can no more be profitable for them. Sometimes, it becomes compulsory for partners to liquidate their partnership firm. Such situations include; insolvency, illegal business activity, death, insanity, retirement, or withdrawal of a partner or upon the completion of a particular project.

Tax Consequences in Partnership:

Partnership is of two types; registered and unregistered. In a registered firm, partners have to pay taxes on their individual incomes from the partnership business. On the other hand, an unregistered firm pays the taxes by itself (Warren, Reeve, & Duchac, 2012). When partners get their firm registered, they get the advantage of lower taxation on their income as compared to the firm's taxation which is greater than individual taxation. Although partners pay their taxes individually in a registered firm, the firm also has to file a Form which declares that the partners have shown their income correctly and a Schedule which contains every detail about each partner's share in profits and losses of the firm (Emerson, 2009).

Conclusion

Although partnership is one of the most viable choices for new entrepreneurs, it still has some complexities and pitfalls that may discourage these entrepreneurs to engage in this relationship (Rese, 2006). On one side, partnership entails the advantages of easy formation process, readily available financial resources, effective decisions by diversely skillful partners, easy termination process, and tax advantages for the partners; but at the same time, it carries certain threats for the continuity of the business. The disagreements and conflicts among partners, unlimited liability, implied authority, and lack of stakeholders' confidence are the major disadvantages in a partnership business. The formation, operations, liquidation, and taxation of a partnership business are quite different from those for sole proprietorship or joint stock corporations.

References

Clifford, D., & Warner, R.E. (2008). Form a Partnership: The Complete Legal Guide. 8th Edition. Berkeley, CA: Nolo

Emerson, R.W. (2009). Business Law. 5th Edition. Hauppauge, N.Y: Barron's Publishers

Li, J., & Wolfstetter, E. (2010). Partnership dissolution, complementarity, and investment incentives, Oxford Economic Paper, 62 (3): 529-552.

Needles, B.E., Powers, M., & Crosson, S.V. (2011). Principles of Accounting. 11th Edition. Mason: Cengage Learning

Rese, M. (2006). Successful and sustainable business partnerships:… [END OF PREVIEW]

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