Partnership Formation and Management

Partnership Formation

• A partnership is a business owned and operated by two or more individuals
• Partners share profits, losses, and management responsibilities
• Partnerships can be formed through:
  • Oral agreement
  • Written partnership agreement
  • Implied agreement (e.g., through conduct)
• Key elements of a partnership:
  • Two or more owners (partners)
  • Shared ownership and control
  • Shared profits and losses
  • Business purpose

Partner Admission

• New partners can be admitted to an existing partnership through:
  • Agreement of all existing partners
  • Written partnership agreement
  • Purchase of an existing partner's interest
• Effects of admitting a new partner:
  • Changes in ownership and control
  • Changes in profit and loss sharing
  • Potential changes in management responsibilities

Partner Withdrawal

• A partner can withdraw from a partnership through:
  • Voluntary withdrawal (e.g., retirement)
  • Involuntary withdrawal (e.g., death, expulsion)
• Effects of partner withdrawal:
  • Changes in ownership and control
  • Changes in profit and loss sharing
  • Potential changes in management responsibilities
• Withdrawal may trigger a revaluation of partnership assets and liabilities

Partnership Dissolution

• A partnership can be dissolved through:
  • Agreement of all partners
  • Court order (e.g., due to partner disputes)
  • Death or bankruptcy of a partner
  • Expiration of the partnership agreement
• Effects of dissolution:
  • Partnership ceases to exist
  • Assets are distributed among partners
  • Liabilities are settled
  • Partnership business is wound up

Profit Allocation

• Profit allocation methods:
  • Equal sharing among partners
  • Proportional to capital contributions
  • Proportional to services rendered
  • Customized allocation (e.g., based on performance)
• Factors influencing profit allocation:
  • Capital contributions
  • Services rendered
  • Management responsibilities
  • Partnership agreement provisions
• Profit allocation can be adjusted through:
  • Amendments to the partnership agreement
  • Changes in partner contributions or services
  • Revaluation of partnership assets and liabilities

Test your understanding of partnership formation, partner admission and withdrawal, partnership dissolution, and profit allocation. Learn about the key elements, effects, and methods involved in partnership management.