Partnership Formation and Management

Study Notes

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

Description

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.