PARTNERSHIP A type of business organization in which two or more individuals pool money, skills, and other resources, and share profit and loss in accordance with terms of the partnership agreement. In absence of such agreement, a partnership is assumed to exit where the participants in an enterprise agree to share the associated risks and rewards proportionately.

CHARACTERISTICS OF PARTNERSHIPSThe characteristics of partnerships are different from the sole proprietorships already studied in basic accounting. Some of the more important characteristics are as follows:Mutual Contribution. There cannot be a partnership without contribution of money, property or industry (i.e. work or services which may either be personal manual efforts or intellectual) to a common fund.Division of Profits or Losses. The essence of partnership is that each partner must share in the profits or losses of the venture.Co-Ownership of Contributed Assets. All assets contributed into the partnership are owned by the partnership by virtue of its separate and distinct juridical personality. If one partner contributes an asset to the business, all partners jointly own it in a special sense.Mutual Agency. Any partner can bind the other partners to a contract if he is acting within his express or implied authority.Limited Life. A partnership has a limited life. It may be dissolved by the admission, death, insolvency, incapacity, withdrawal of a partner or expiration of the term specified in the partnership agreement.Unlimited Liability. All partners (except limited partners), including industrial partners, are personally liable for all debts incurred by the partnership. If the partnership can not settle its obligations, creditors' claims will be satisfied from the personal assets of the partners without prejudice to the rights of the separate creditors of the partners.Income Taxes. Partnerships, except general professional partnerships, are subject to tax at the rate of 34% (in 1998), 33% (in 1999) and 32% (in 2000 and thereafter) of taxable income.Partners' Equity Accounts. Accounting for partnerships are much like accounting for sole proprietorships. The difference lies in the number of partners' equity accounts. Each partner has a capital account and a withdrawal account that serves similar functions as the related accounts for sole proprietorships.

TYPES OF PARTNERSHIPSA partnership arises whenever two or more people co-own a business, and share in the profits and losses of the business. Each person contributes something to the business -- such as ideas, money, or property -- though management rights and personal liability will vary depending on which of three modern partnership forms the business takes: general partnership, limited partnership, or limited liability partnership (LLP). General PartnershipsA general partnership involves two or more owners carrying out a business purpose. General partners share equal rights and responsibilities in connection with management of the business, and any individual partner can bind the entire group to a legal obligation. Each individual partner assumes full responsibility for all of the business's debts and obligations. Although such personal liability is daunting, it comes with a tax advantage: partnership profits are not taxed to the business, but pass through to the partners, who include the gains on their individual tax returns at a lower rate.Limited PartnershipsA limited partnership allows each partner to restrict his or her personal liability to the amount of his or her business investment. Not every partner can benefit from this limitation -- at least one participant must accept general partnership status, exposing himself or herself to full personal liability for the business's debts and obligations. The general partner retains the right to control the business, while the limited partner(s) do(es) not participate in management decisions. Both general and limited partners benefit from business profits.Limited Liability Partnerships (LLP)Limited liability partnerships (LLP) retain the tax advantages of the general partnership form, but offer some personal liability protection to the participants. Individual partners in a limited liability partnership are not personally responsible for the wrongful acts of other partners, or for the debts or obligations of the business. Because the LLP form changes some of the fundamental aspects of the traditional partnership, some state tax authorities may subject a limited liability partnership to non-partnership tax rules. The Internal Revenue Service views these businesses as partnerships, however, and allows partners to use the pass through technique.Existing partnerships that wish to take advantage of LLP status do not need to modify their existing partnership agreement, though they may choose to do so. In order to change status, a partnership simply files an application for registration as a limited liability partnership with the appropriate state agency. All states require disclosure of the partnership's name and principle place of business. Some states also require, among other things, identification of the number of partners, a brief description of the business, a statement that the partnership will maintain insurance, and written acknowledgment that the limited liability status may expire.

KINDS OF PARTNERSThe following are the major classification of the partners:1. Active Partner (Managing or Working Partner)A person who takes active part, in the affairs and management of the business is called active partner. He contributes his shares in the capital and is also liable to pay the obligations of firm.2. Nominal PartnerHe is not in reality a partner of firm but his name is used as if he is a member of the firm. He is not entitled in the profit or loss of the business but he is liable to all the acts of the firm. The person who has good prestige and status is given, the position of nominal partner. 3. Sub-PartnerThe person who receives a share of profit from one of the regular partners is called the Sub-Partner. He is not liable to pay the debt is of the firm. He has no rights and privileges against the firm.4. Silent Partner (Silent form managing point of view)He is that kind of partner who does not participate in the affairs of the business but is known to outsiders as a partner of the firm. He is liable to pay the debts of the firm like other partner.5. Secret Partner (Secret from public point of view)He is active in the running life of the firm but public does not know him as partner of the firm. He pays his share in the capital and is liable to settle the creditors of the firm.6. Sleeping Partner or Dormant Partner (Sleeping From Both Points of View i.e. public and managing)A person who (a) does not conduct the management of the firm personally (b) is not known to the outsiders as a partner of the firm, is called sleeping partner. But he invests his amount in the business and is liable to clear the debts of the firm. He is also called dormant partner.7. Minor PartnerThere is no restriction to join the minor in the partnership by law. Although he may become partner but with the consent of all existing partners. In this case, he can be admitted to the profits of the firm only but not losses. He is not personally liable for the obligations of the firm. But minor has the right to inspect and copy .the accounts of the firm. Within six months of his attaining maturity, he has to give public notice whether he wants to remain partner or not. After his decision, he will deemed as full fledged partner.8. Quasi PartnerA person who has retired from the running management life of the firm but he does not withdraw his capital from the business is know as quasi-partner. So his capital is considered as a loan and he receives interest at the rate varying with the profit. Really he is not a partner but he is a Deferred Creditor. 9. Senior PartnerA person who brings large portion of capital in the business is called senior partner. He has prominent position in the firm due to his experience, skill, energy, age and other abilities.10. Junior PartnerHe invests minor portion of capital in the business and so he has small share in the profits. He is junior to an other partner in the firm due to his age, experience and other factors.11. Holding Out Partner (Estoppels partner)A person who declares by word of mouth as partner of the firm is called holding out partner. In reality he is not a regular partner so he is not entitled to receive share of profit. Such persons are liable to those parties who have given credit on the faith of such representation.12. Salaried PartnerAn individual who does not bring anything i.e. amount or goods in the firm but has right to receive salary or share in the profit or both is named as salaried partner. He is known to the outside world as a partner and is liable for all the acts of the firm like other partners.13. Incoming PartnerA person who is newly admitted to the firm with the consent of all the parties is called incoming partner. He is not liable for any act of the firm done before he became a partner unless he agrees;14. Retired Partner (Outgoing Partner)A person who goes out of a firm due to certain event or reason is known as retired or out going partner. In this situation the remaining partners continue to carry on the business. Retiring partner is liable for all the obligations and debts incurred before the retirement. But he will also be liable to third parties even for future transaction, if he does not give public notice of his retirement.15. Partners in Profit OnlyHe is an individual who gets a share of the profits only without being liable for the losses. He does not participate in the management of the business. He will be liable to outsiders for all acts of the firm. 16. Limited PartnerA person who has not to pay any obligation more than the share he holds in the firm is called limited partner. He can not take part in the management of the firm. This kind of partner exists in limited partnership. But this organization is rare in our country.

ARTICLES OF PARTNERSHIPArticles of partnership is a voluntary contract between two or among more than two persons to place their capital, labor, and skills, and corporation in business with the understanding that there will be a sharing of the profits and losses between/among partners. Outside of North America, it is normally referred to simply as a partnership agreement.A partnership agreement is the written and legal agreement between business partners. It is always recommended but not essential for partners to have such an agreement.