Partnership Law in Ghana

• A partnership is when two or more people carry on a business together to make a profit, according to section 3(1) of the incorporated private partnership Act 1962, Act 152
• A partnership must have at least two members and no more than 20
• A partnership must be registered in Ghana
• The partnership law took effect on January 1, 1963

Meaning of Partnership

• A partnership constitutes the association of two or more people jointly engaged in business with the aim of earning profits

Exceptions to Partnership

• An association of members is not considered a partnership if it consists of:
• A company registered under the Companies Ordinance, (Cap. 193), or any statutory re-enactment
• A company, a corporate body, or an unincorporated association formed under another enactment
• A corporate body formed by the law of a foreign country, regardless of whether or not it carries on business in Ghana
• A joint venture without a firm name for particular operations

Scenarios Not Creating Partnerships

• Family or co-ownership of a property does not in itself establish a partnership, regardless of profit sharing from that property

Profit Sharing as Evidence

• Sharing the net profits of a business is considered evidence of a partnership

Exceptions

• The remuneration of a business's servant or agent through a share of the profits does not make that agent or servant a partner

Non-Participation in Business

• A person is not deemed a partner if they did not participate in the business's operations and lacked authorization to do so

Nature of a Partnership (Section 12)

• A firm becomes a corporate body under its firm name from the registration date outlined in the registration certificate

Powers as a Corporate Body

• A registered firm can exercise the powers of a natural person with full capacity

Continuity Despite Changes

• A firm continues to exist as a corporate body even with changes to the partnership's constitution until it is dissolved, as per sections 51, 52, and 53 of this Act

Partner Liability

• Each partner is liable for the firm's debts and obligations without limitation, despite the firm being a corporate body but is entitled to indemnity and contribution from co-partners as per the partnership agreement

Keeping Accounts (Section 32)

• Every firm is required to maintain proper accounts reflecting its financial position

Scope of Accounting

• Accounting includes all property acquired for resale or use and must show:
• All money received and spent by the firm and the reasons for these financial activities
• All sales and purchase of goods and services
• The firms assets, liabilities and partner interests

Periodic Financial Statements

• Every firm should prepare financial statements at intervals of no more than fifteen months

Financial Statement Components

• Financial statements should include:
• A profit and loss account presenting a true and fair view of the profit or loss for the relevant period
• A balance sheet showing a true and fair view of the firm's assets, liabilities, and the value of each partner's interest at the end of the period

Registrar's Authority

• The registrar has the authority to:
• Prescribe the format or minimum information required in accounts and balance sheets
• Require audits of accounts and balance sheets
• Determine the qualifications of auditors, via an order published in the Gazette

Penalties for Non-Compliance

• Partners face a fine not exceeding one hundred pounds for failing to maintain or prepare the required accounts and balance sheet

Partner Access to Accounts

• Every partner has the right to view and copy the firm's accounts, regardless of any agreement stating otherwise
• Copies of the profit and loss account and balance sheet must be provided to each partner, former partner, or the representative of a deceased partner

Relationship of Partners to one another (Section 34)

• Partners must maintain a fiduciary relationship with each other and with the firm

Obligations of Every Partner

• A partner is obligated to disclose all information that could affect the firm to every other partner
• A partner must account to the firm for any personal benefits derived from the firm's transactions, property, name, or business connections, without the other partners' consent
• A partner must account for and surrender to the firm all profits made by carrying on a competing business without the consent of the other partners

Rules Applying in the absence of Contrary Agreement (Section 35)

• The mutual rights and duties of partners are subject to this Act and can be changed if all partners agree
• Such consent can be explicitly stated or inferred

Agreement for Rules

• All partners are entitled to share capital and profits equally and contribute equally to losses
• The firm must indemnify every partner for payments made and personal liabilities incurred:
• In the normal, proper conduct of the firm's business
• For actions necessarily taken to preserve the business or its property
• A partner is entitled to 5% interest per annum on any actual payment or advance beyond their agreed capital contribution

Capital Interest

• Payment of interest on a subscribed partner's capital will only occur after the firms profits are ascertained
• Every partner is allowed to participate in the business's management
• No partner is entitled to remuneration for acting in the firms business

New Partner Introductions

• No individual can be brought in as a partner without their own consent and the consent of all current partners
• The majority of partners can decide on differences in ordinary business matters, but changing the fundamental nature of the business requires consent from all partners
• The partnership books and accounts must be kept at the firm's place of business or its primary business location

Cessation of Membership of firm (Section 37)

• A partner will cease to be a partner if any of the following occur:
• Death
• Becoming an alien enemy during a time of war
• If an insolvency order is made against them

Winding up of Firm (Section 44)

• A firm may be wound up through:
• Insolvency proceedings under the Insolvency Act, 1962 (Act 153) against all the partners jointly
• A court order
• Voluntary liquidation by the partners

Capital Account

• The capital account is credited with the amount of capital introduced by the partner

Fixed Capitals

• In cases where fixed capitals are maintained, the capital account remains unchanged unless there is an agreement to increase or decrease the fixed capital balance
• With floating or fluctuating capital accounts, items like drawings and interest on drawings are debited

Capital Account Credits

• The account is credited with interest of advances, interest on capital, partners' salary, partners' commission, and share of profits

Current Accounts

• Current accounts are employed alongside fixed capital accounts

Balance Display

• The balance display on the current account at any given time shows the amount that can be withdrawn from the firm without reducing the partners' fixed capital

Overdrawn Accounts

• A debit balance on the current account indicates that the account has been overdrawn

Appropriation Account

• Because more than one person owns the partnership, any profit or loss from the business's operation needs to be shared between the owners

Profit/Loss Account

• As a result a profit or loss appropriation account is prepared usually after the profit or loss account
• The profit and loss account of the partnership is incomplete without the appropriation account

Interest On Loan

• Interest on a loan given by a partner should be treated the same way as any other interest on a loan

Accounting Entry

• The accounting entry is as follows: DR Profit and loss account (Interest expense) XX CR Cash XX
• If not paid, it should be credited to the loan payable account as a current liability