Question

2. Discuss in detail the following areas covered under partnership agreement. (3 Marks)

• Manner of sharing profits.
• Limitations on withdrawals.
• Rights of partners.
• Conflicts of interest

Answer 1

Answer-

1-Manner of sharing profits:-

Partner's Profit & Loss profit sharing ratio is already described in partnership agreement. Partners can distribute profit or loss in their capital investing ratio or they can equally distribute profit or loss. It is necessary that these terms must be included in partnership agreement to avoid any kind of conflicts among partners.In the absence of partnership agreement partners can distribute profit & loss equally.

2-Limitations on withdrawals:-

A partner can withdrawals from partnership with the consent of other partners only. Otherwise a partner can withdrawals only if it is described in partnership agreement.Limitation on withdrawals must be included in partnership agreement to avoid any kind of conflicts among partners.

3-Rights of partners:-

Rights of partners also described under partnership agreement as partner can get rights only as these are mentioned in partnership agreement as right to participate in business, right to express opinion, right to access books and accounts, right to share profit and right to interest on capital and advances. If these rights are not mentioned under partnership agreement there can be conflicts among partners.

4-Conflicts of interest:-

To avoid any kind of conflicts among partners the creation of partnership agreement is necessity. A partnership agreement is the legal document that dictates the way a business is run dictates the relationship among partners.