What a partnership agreement covers
The agreement says how the partners share profit. See what it covers, what applies when there is none, and how to share in a ratio.
Task 1The partners' own rules3 questions
A partnership is two or more people who own a business together. Nia Ashby and Ben Cole own Ashby and Cole Joinery.
The partnership agreement is the partners' own set of rules. The part that matters to the bookkeeper is how the profit is shared.
- Profit sharing ratio
- the shares in which the partners split the profit, such as 3:2
- Partner's salary
- a fixed amount of profit given to a partner first, often for extra work
- Interest on capital
- a share of profit worked out on the capital each partner has put in
- Interest on drawings
- a charge on what a partner takes out during the year
A partner's salary and interest on capital are not expenses of the business. They are ways of sharing the profit.
Task 2When there is no agreement3 questions
Task 3Sharing in a ratio3 questions