14 May HOW WILL YOU HANDLE THE ADMISSION OF THE NEW PARTNER IF HE OR SHE PURCHASES AN INTEREST IN THE PARTNERSHIP?
Unit 5 Discussion: Partnership Agreements
Note: Please complete your reading assignment and view the unit presentations before you participate in
this discussion.
Partnership agreements can vary, depending upon what the partner contributes to the agreement. Each
partner brings certain personal skills and assets into a partnership. For example, one partner could supply
technical knowledge while the other partner supplies business knowledge or perhaps the financing for the
partnership. When there are two parties involved, the partnership agreement would easily be split 50/50.
However, when there are multiple partners involved, the partnership becomes more complicated. Perhaps
one partner supplies time to run the business, another partner supplies talent, and the third partner
supplies physical assets, and yet another partner supplies financing. The partnership agreement
obviously becomes more difficult to structure.
As you have learned in this unit, there are different methods used to allocate income among the partners.
Income can be allocated based on stated ratios, services, and capital. Some partners do not provide any
services but provide capital such as cash or equipment to the partnership. This is why it’s so important to
choose a business form that bests covers the needs and wants of everyone in involved.
Discussion Questions
Imagine you are forming a partnership with two other partners. All three of you have cash to invest in the
business as well as skills to contribute. Two of your partners will provide services, along with investing
cash.
Are there any details you think should be included in the partnership agreement? What
disadvantages should you be aware of when forming a partnership?
How will you allocate income or loss? Will you also include a salary allowance for the partners
who contribute services?
Allocation of partnership income among the partners appears on what financial statement?
How will you handle the admission of the new partner if he or she purchases an interest in the
partnership?
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