What is a partnership: Investigating partnership deeds
You should look through the Partnership Deeds to check for the clauses dealing with these points:
- How much of the opening capital was provided by each partner. (This could involve a lifetime transfer on the commencement of the partnership if a part of one partner’s initial contribution was assigned to one or more of the other partners. An example would be if the deceased took a child into partnership and the capital of the deceased’s former (sole trader) business was credited in equal shares to each of the partners’ opening capital account although this may be covered by business relief. Any cases of difficulty should be referred to Technical for guidance.
- The type of business.
- The date the partnership began.
- How profits and losses were shared. (This is known as the profit sharing ratio. This ratio can be changed if the partners wish and such changes may give rise to a lifetime claim if there are substantially undervalued assets in the balance sheet at the time of change. Refer any such case to Technical. This is an important point because any increase in capital values is often shared amongst the partners in the same proportions as the profits are shared).
- Rights and duties of the partners.
- What happens on the death or retirement of a partner.