CHAPTER FIVE.

Partnership.

A Partnership is an association of two or more persons who combine their capital, skill and labor, or all of them, for the purpose of conducting some lawful business, and for sharing in the profits or losses arising therefrom, according to the terms of their agreement.

Capital is the money, property, goods, etc., invested in the

business.

Partners are distinguished as Active, Nominal, Silent and Special. Active Partners are those who are actually known as Partners, and who share all the profits or losses in the business.

Note. Active Partners are called Ostensible Partners, whose names are made known and appear to the world as Partners, and who in reality are such and take all the benefits and risks.

Nominal Partners are those who have no real interest in the business, but who assume the responsibility of Partners by lending to the Partnership their names and credit.

Note. Nominal Partners appear and are held out to the world as Partners, but have no real interest in the firm's business.

Silent Partners are those whose names are concealed, and are not therefore known as Partners. They are, however, actual Partners, and conceal their names principally to avoid liability to the creditors of the firm. Should a Silent Partner take an active part in the business of the firm, such action would render him as liable as the other partners.

Note. "Kent's Commentaries" defines Silent Partners as Dormant Partners, whose names are not known or do not appear as Partners, but who, nevertheless, are silent partners, and partake of the profits, and thereby become partners, either absolutely or to all intents and purposes, or at all events in respect to third persons.

Special Partners are those who furnish a certain portion of the capital of the firm, and are liable only for that amount. If the extent of their liabilities, however, is not published and legally recorded, they may be held equally liable with the other partners.

Partnership Adjustment is a settlement of Partners' accounts, setting forth the net investments, liabilities assumed, withdrawals, losses or gains, and showing net capital or net insolvency at closing or settling the Partnership's interests. Partnership settlements are usually made when a new member is admitted to the firm, and when a dissolution takes place; also at regular intervals, according to the Articles of Co-partnership.

Articles of Co-partnership, or Partnership Contract, is a written instrument, setting forth the agreement between the Partners; specifying the amount of each Partner's Investment; the limitation of the Partnership; the proportion allowed to be withdrawn by each Partner; the proportion of profit or loss which each Partner shall bear, and such other particulars or stipulations as may be deemed expedient.

Note. It not infrequently happens that one Partner's experience or business knowledge is the only Investment which is required of him. Sometimes one or more of the Partners receive a regular salary in addition to their proportionate share of the profits, for keeping the books, or some other special duty. Oftentimes interest is allowed on each Partner's Investment, and interest charged on all sums withdrawn. Each and every detail, however, should be fully set forth in a carefully drawn Partnership Contract.

The Capital of a firm is the entire value of its Assets or Resources. The Assets or Resources of a firm are its entire property, including all debts or obligations due to the firm.

The Liabilities of a firm embrace all the debts or obligations due by the firm to its creditors.

The Investment is the aggregate of the money or property jointly contributed by the partners.

The Net Investment is the difference between the total sum invested and the total withdrawals.

The Average Investment is an average sum in the continuous use of the firm when several investments, withdrawals, or both, have been made at different times.

The Insolvency of a firm is the total amount due the Creditors in excess of the firm's Assets or ability to pay.

The Net Gain is the excess of gains over the losses.

The Net Loss is the excess of losses over the gains.

The Net Capital of a firm is the excess of Assets over all Liabilities, except such as stand to the Partners' credit. The Adjustment of Accounts between partners involves often the nicest discrimination

and the most complete knowledge of the bearings of different entries. The numerous difficulties existing in Partnership settlements are so complicated and irregular, that any attempt to supply Rules to meet every case would be preposterous. It is, however, possible to give such general principles and illustrations as will apply in most cases, but a thorough knowledge of the science of accounts, with good common sense to apply it, will be found an important requisite; yet with all the knowledge and experience that can be had, complications will arise that will tax your skill to the utmost.

Note. Remember that all partnership settlements are made according to the Original Agreement, and in making such settlements be sure to have a thorough understanding of the Agreement, master the principles herein given, and you will soon be master of any complications that may arise.

When the Loss or Gain is shared in proportion to each Partner's Investment. Principle. Divide the Profit or Loss by the sum of the Investments; this will give the per cent. of Profit or Loss that each Partner must bear. Multiply each Partner's Investment by the per cent. of Profit or Loss thus found, and the product will be his respective share of Profit or Loss.

What would be each Partner's share of Profit or Loss in the following accounts, if shared in proportion to amounts invested? Net Gain $3150.00.

$3400.00+$2900.00+$4200-$10,500.00, Total Investment. $3150.00÷$10,500.00 (Net Gain) =30%.

30% gain $3400.00-$1020.00, First Partner's Share.

Ex. 152. Sharing the Gains or Losses in proportion to the investment. How much of the Gain would each receive from the following statement?

Ex. 153. When the Losses or Gains are to be divided in proportion to each Partner's Investment and Time. Principle, Multiply each investment for the time it was in use of the firm and divide the product by the time for which the Losses or Gains are adjusted.

If the profits are divided in proportion to the capital invested and the time it was employed, what would be each partner's average investment and share of the profits, from the following accounts. Net Gain, $4620.00.

Balance.......

Jan. 1, 1892, C. W. Strickler invested $6000.00×2=$12000.00 for 1 mo. Mar. 1,

July 1, 1892, C. W. Strickler invested.. 2900.00

Amt. invested.....$7400.00×6= 44400.00

withdrew 1500.00

.$4500.00×4-$18000.00 for 1 mo.

C. W. Strickler's average investment.....

12) $74400.00

$6200.00

Jan. 1, 1892, S. K. Ebersole invested $6000.00×2=$12000.00 for 1 mo.

Amt... $9000.00×4= 36000.00 for 1 mo.

July 1, 1892, S. K. Ebersole withdrew 3000,00

$6000.00×6= 36000.00 for 1 mo.

S. K. Ebersole's average investment.. ...

12) $84000.00

$7000 00

C. W. S. average investment, $6200.00+S. K. E. average investment $7000.00 $13200.00, Total Investment. $4620.00 (Net Gain) $13200.00 (Net Investment)=35% profit.

35% gain on $6200.00-$2170.00, Strickler's Profit.

7000.00 2450.00, Ebersole's

$4620.00, Proof.

Ex. 154. The following partners dissolved at the end of the year with a net capital remaining of $2600.00. How should it be adjusted?

When the partners of a firm agree to invest certain proportion of the capital upon condition of receiving a fixed share of the profits, the Partner who fails to invest his proportion of the capital, virtually has the use of the difference between his required Investment and the sum actually placed to his credit. If a partner invests less than the sum required, he is charged interest on the deficiency, and if he invests more than the sum required, he is allowed interest on the excess.

To adjust the Partner's Accounts, when the proportion of Profit or Loss is fixed and Interest is allowed on the Excess and charged on the Deficit of each Partner's required Investment.

Principles. 1-Compute the interest on each Investment and Withdrawal from the time they were made to the date of settlement; subtract the Debit interest from the Credit interest, and the difference will be the interest on each Partner's Net Investment.

2-Add together the Balances of interest thus found, and their sum will be the interest on the entire Net Capital. Find such a proportion of this interest as would be allowed each Partner-the same as if he made the required investment.

3-If the interest of any Partner's Net Average Investment exceeds the interest of his required Investment, the difference will be the Interest due to such Partner; if less, the difference will be the Interest due from such Partner.

4-The excess of Investments over the Withdrawals, plus the Net Interest due such partner, or minus the Net Interest due by such Partner will be his Present Worth.

5-If the sum of the Withdrawals of one of the Partners be in excess of that of his Investments, such excess, plus the interest thereon, plus the interest on his required Investment, will be his net insolvency.

Note. If any Partner's total Debit interest be greater than his total Credit interest, the difference will be the interest of such Partner's net average indebtedness to the firm, which should be subtracted from the sum of the interest balances to the credit of the remaining Partners, to find the interest of the firm's net average capital. The