I am not completely familiar with partnership agreements, however, I am just reading through my clients new one agreement. In the dissolution part it has a % ratio between the partners. As one partner has a bigger stake they have a much higher percentage, and the smaller partner gets a salary and much smaller percentage. However, what happens with money in the partners current accounts? This is allocated to the partner already via the profit share and withdrawn as drawings. Would that be excluded from any % of dissolution distributions?
I'm probably reading the question wrong, so on that basis ignore me.
If the money is already in their accounts then yes it is theirs already. Able to be withdrawn, yet not taken - for reason XYZ.
On cessation, broadly speaking - assets and liabilities would be split as per the ratios set in the agreement. The accounts could be used to offset against any liabilities owed, offset as in if there is real tangible cash to be used.
Today is a day of saying I've no experience of partnerships, together with the third sector.
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Johnny - Owner of an overly-active keyboard.
A man who can read, yet doesn't, is in no way wiser than a man who can't.
Effectively as one partner leaves any partnership(eg in a 3 or 4 man partnership) then there is a dissolution of that business, so the entries work in the same way. Are you ok with how that scenario would work? If so just apply the same process.
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Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
Thanks for the responses, I've been poorly past week so missed the responses.
It's not actually happening, I was just reading through agreement for year end profit sharing etc and the dissolution thing interested me. I would have thought there was some specification in it about the partners split named accounts.
They are quite new to running a business. I help them as far as I can, but have clearly stated I know nothing about legal stuff/contracts. They had some help drawing up the agreement, just seems to me to it's missing some clarity for the accounts.
Would really need to see the agreement to comment more - or could you tell us what else you consider is not included that should be for the accounts? When you say about having help drawing up the agreement - was this from an appropriately trained solicitor? If not, then you cannot really give advise unless your PII covers it, so I would be encouraging them to get it looked at by the appropriately trained solicitor now - sooner rather than when they have had a fall out!!
(Reason I keep mentioning appropriately trained is because Ive seen some business owners think its ok to to use the local family law solicitor to draw up complex business contracts and whilst a solicitor would have covered off such contracts in their original trianing, seeking smeone who is a specialist is just as important (and maybe more so) as finding an Accountant/Tax advisor who specialises in certain areas)
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Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
In my previous self employed life I was Managing Partner of a Partnership. The Partnership Agreement really needs to be drawn up by an expert (in our case I was part of a franchise and the Franchisor employed the services of someone who had won a test case in court on a specific aspect of Partnerships and VAT). I am still bound by confidentiality agreements for the next few years so can't reveal details but it was drawn up in such a way that I was solely liable for any debts incurred and any money in the current account belonged to me apart from the specific Profit Share and Drawings set out in the agreement.
The word Franchise makes me go cold Julie!!!!!! Seen far far too many folk never make any money from them, although I do accept that there are a few good ones, so do hope your experience was a good one.
Anyone entering one - get your own legal bod to check their legals. Plus as we have said - not just any old legal bod - a proper expert. Franchises do usually tie things up pretty tightly legally in their agreements but ALWAYS in their own favour - be good to see the franchisee have more power. I know one who anted to introduce some reet dodgy accounting software into their businesses - most of the franchisees complied just because they never ever questioned anything that the HO bods said, but I know folk who did dispute it and as they had never actually put that 9and a pile of other stuff they were trying to enforce) into their agreements he basically told them to do one.
Hope you are feeling better now Lyndsey
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Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
It was a good one Joanne and for many years was very successful. It only started to not become successful due to a change in personal circumstances which meant I didn't have enough time to devote to marketing which is crucial in any business as you will know. The person I sold to is doing very well and has brought fresh ideas/enthusiasm. The main role of the franchisor was to uphold standards via unannounced inspections and to make sure we were complying with health & safety, child protection, tax etc requirements. All equipment we were able to source ourselves as required apart from branded uniform clothing.
Glad to hear about a positive franchise experience Julie. I would certainly still look at looking after a franchise client but only in certain circumstances and after a hell of a lot of digging first.
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Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
