Accounting for partnerships

Partnership is the most appealing and luring form of business following how it is managed and taxed. However, in some cases, it is not. Most friends, families and relatives have pulled their resources together with an aim of building a business empire together and most often their partnerships have gone sour thus ending so badly. Before one enters into a business partnership, Hoyle, Christensen, & Brooklyn College advices that one should weigh both the disadvantages and the advantages. Advantages of Partnership Capital – the nature of the business will call for funding, the individual parties involved will have to pull their resources together so as to fund their mini business which is just starting. Decision Making – there is sharing platform for all the partners where each and every person is welcomed to air their mind.

Now, when there are more partners then it implies that there will be numerous options to pick from if need arises that calls for problem solving skills. Disadvantages of Partnership Disagreement – this normally occurs between partners, it is known as the deadliest weapon there is that kills partnership businesses. It is very obvious that people can easily disagree on a particular proposal because people have different ideas and insights about the daily operation and management of the business. Different in ideas can lead to dispute that eventually affects the business as well as affecting the relationship between the once friends business partners. They are required to submit an annually tax return. The law requires them to register at the HM Revenue & customs as self-employed.

In the amended law, it has been stipulated clearly that the more you bring in as partners, actually beyond a set standard limit, then the more taxes individual partners pay. Sometimes it is more compared to even if the partners would have been in a limited company. The taxation law in a limited company is more favorable compared to partnerships. Partnership agreement also stipulates how losses and profits will be shared among the partners – profits or losses may be shared equally or in accordance with individual’s contributions. Other rewards that are contained herein include salary provisions which must be in line with the salaries and remunerations principles. The rights, obligations and duties of partners are also defined in the partnership agreement.

When need be and some other people show interest in joining the partnership – laid down rules and procedures of joining or rather of admitting a new partner are stipulated herein. This also includes the withdrawal procedures especially when one partner wants to withdraw because of various personal reasons. Now, the challenge with this practice is that the partnership is likely to treat those fraction taxes payments as a guaranteed payment to the partner thus if it is included in the income just like they always do then it will increase the additional employment taxes. Another dangerous game is treating partners as employees; this is likely to increase the employment taxes (Lowellyne, 2015). Employee benefits There are so many reasons, actually good reasons why partners should not be treated as employees in a partnership business venture but when partners are treated as employees then unwanted tax consequences are triggered.