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Partnership by Mind Map: Partnership

1. The advantages of current account are as follows:- Current account is mainly opened for businessmen such as proprietors, partnership firms, public and private companies, trust, association of persons, etc. that has a large number of daily banking transactions, i.e. receipts and/or payments. It enables businessmen to carry out their business transactions properly and promptly. The businessmen can withdraw from their current accounts without any limit, subject to banking cash transaction tax, if any levied by the government. Home branch is that location where one opens his bank account. There are no restrictions on deposits made in the current account opened in a home branch of a bank. However, the current account holder can deposit the cash from any other branch of a bank other than the home branch by paying a nominal charge as applicable. It helps businessmen to make a direct payment to their creditors by issuing cheques, demand-drafts or pay-orders, etc. It enables a bank to collect money on behalf of its customers and credits the same in their customers' current accounts. It enables the current account holder to obtain overdraft (short-term borrowing) facility. The creditors of the account holder can get credit-worthiness information of the account holder through inter-bank connection. It facilitates the industrial progress of the country. Without its help, businessmen would face difficulties in running their businesses. It has the facilities of Internet-banking and mobile-banking to carry out important business transactions with ease and quickly. It also provides various other advantages (benefits) such as: Deposit and withdrawal of money (cash) at any location. Multi-location funds transfer, Electronic funds transfer, Periodical (monthly, quarterly or yearly) e-mail or download of bank statements in various formats like '.XLS', '.TXT', '.PDF', etc. Support from customer care executives.

2. Advantages and disadvantages of forming a partnership

2.1. Business Partnership Advantages • Partnerships are relatively easy to establish. • With more than one owner, the ability to raise funds may be increased, both because two or more partners may be able to contribute more funds and because their borrowing capacity may be greater. • Prospective employees may be attracted to the business if given the incentive to become a partner. • A partnership may benefit from the combination of complimentary skills of two or more people. There is a wider pool of knowledge, skills and contacts. • Partnerships can be cost-effective as each partner specializes in certain aspects of their business. • Partnerships provide moral support and will allow for more creative brainstorming.

2.1.1. Business Partnership Disadvantages • Business partners are jointly and individually liable for the actions of the other partners. • Profits must be shared with others. You have to decide on how you value each other’s time and skills. What happens if one partner can put in less time due to personal circumstances? • Since decisions are shared, disagreements can occur. A partnership is for the long term, and expectations and situations can change, which can lead to dramatic and traumatic split ups. • The partnership may have a limited life; it may end upon the withdrawal or death of a partner. • A partnership usually has limitations that keep it from becoming a large business. • You have to consult your partner and negotiate more as you cannot make decisions by yourself. You therefore need to be more flexible. • A major disadvantage of a partnership is unlimited liability. General partners are liable without limit for all debts contracted and errors made by the partnership. For example, if you own only 1 percent of the partnership and the business fails, you will be called upon to pay 1 percent of the bills and the other partners will be assessed their 99 percent. However, if your partners cannot pay, you may be called upon to pay all the debts even if you must sell off all your possessions to do so. This makes partnerships too risky for most situations. The answer would be a different business structure.

3. Need for partnership agreement

3.1. A partnership agreement is a legally binding contract between at least two individuals -- or other legal entities -- establishing a unique business enterprise, clearly stating the rights and responsibilities of the partners who form the business enterprise

4. Common terms in partnership agreement

4.1. Name and address of partnership. Duration of partnership—Partners can point to a specific termination date or include a general clause explaining that the partnership will exist until all partners agree to dissolve it or a partner dies. Business purpose—Some consultants recommend that partners keep this section somewhat vague in case opportunities for expansion arise, while others emphasize clear-cut and unambiguous entrepreneurial goals. Bank account information—This section should note which bank accounts are to be used for partnership purposes, and which partners have check-signing privileges. Partners' contributions—Valuation of all contributions, whether in cash, property or services. Partners' compensation—Determine in detail how and when profits (and salaries, if applicable) will be distributed. Management authority—What are the operational responsibilities of each partner? Will partners be able to make some decisions on their own? Which decisions will require the unanimous consent of all partners? What are the voting rights of each partner? How will tie votes be resolved? Circumstances under which new partners might be admitted into the partnership. Work hours and vacation. Kinds of outside business activities that will be allowed for partners. Disposition of partnership's name if a partner leaves. Dispute resolution—Stipulates what kinds of mediation or arbitration will be utilized in the case of disputes that cannot be resolved amongst the partners. This is a way to avoid costly litigation. Miscellaneous provisions—This portion of the agreement might delineate the circumstances under which the agreement could be amended, for example.

5. Features and capital structure

6. Capital accounts

7. Current accounts

7.1. Sometimes the Current Account of a parnter may have a debit balance. This indicates the amount he owes the firm, having drawn out more than his share of profits.

8. Profit and Loss Appropriation accounts

9. The rules governing the interests of partner in the partnership agreement

9.1. Rules for determining existence of partnership 2. In determining whether a partnership does or does not exist, regard shall be had to the following rules: (1) Joint tenancy, tenancy in common, joint property, common property, or part ownership does not of itself create a partnership as to anything so held or owned, whether the tenants or owners do or do not share any profits made by the use thereof. (2) The sharing of gross returns does not of itself create a partnership, whether the persons sharing such returns have or have not a joint or common right or interest in any property from which or from the use of which the returns are derived. (3) The receipt by a person of a share of the profits of a business is prima facie evidence that he is a partner in the business, but the receipt of such a share, or of a payment contingent on or varying with the profits of a business, does not of itself make him a partner in the business; and in particular — (a) the receipt by a person of a debt or other liquidated amount by instalments or otherwise out of the accruing profits of a business does not of itself make him a partner in the business or liable as such; (b) a contract for the remuneration of a servant or agent of a person engaged in a business by a share of the profits of the business does not of itself make the servant or agent a partner in the business or liable as such; (c) a person being the widow or child of a deceased partner, and receiving by way of annuity a portion of the profits made in the business in which the deceased person was a partner, is not by reason only of such receipt a partner in the business or liable as such; (d) the advance of money by way of loan to a person engaged or about to engage in any business on a contract with that person that the lender shall receive a rate of interest varying with the profits, or shall receive a share of the profits arising from carrying on the business, does not of itself make the lender a partner with the person or persons carrying on the business or liable as such: Provided that the contract is in writing, and signed by or on behalf of all the parties thereto; (e) a person receiving by way of annuity or otherwise a portion of the profits of a business in consideration of the sale by him of the goodwill of the business is not by reason only of such receipt a partner in the business or liable as such.

10. the differences between sole trader and partnership in terms of their features, capital structure and profit sharing

10.1. .Credibility 1)Money You Owe Liable for all money the business owes. Liability is unlimited. Personal assets can be seized to pay business debts. Unlimited liability also applies. You are liable for your partners share of the debts, including unpaid taxes relating to the partnership. 2)Start Up Procedures Cheapest form to organise- just advise IRD. Do not have to get a written partnership agreement, but would be sensible to do so if partnership is not husband and wife. 3)Financial Accounts Accounts Format not laid down by law. No requirement to produce a Balance Sheet. Same as Sole Trader. 4) Getting Accounts Audited No requirement. No requirement. 5)Rates of Tax Tax paid based on personal marginal income tax rates on all income. This may be lower or higher than 38c/ $ Tax paid based after distribution of partnership profit on personal marginal income tax rates on all income. This may be lower or higher than 39c/ $. When you Pay Tax 6)What to do with Losses Set off Losses against future trading profits and against other income in the year of the loss or the year after. Same as Sole Trader. 7)Raising Money Options are fairly limited- to bank or other individual. Same as sole trader plus may be able to find a new partner to bring in capital.