question archive Geetha, Joe and Augustine entered a business arrangement to run a large bakery
Geetha, Joe and Augustine entered a business arrangement to run a large bakery
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Geetha, Joe and Augustine entered a business arrangement to run a large bakery. Geetha and Augustine left their employment to work full time in the new business. Joe retained his job but agreed to help lent RM70,000 to the new business venture. It was agreed that Geetha and Augustine would each be paid a salary of RM5,500 a month and Joe would be paid 4% interest on her loan. The business arrangement was done in writing. It also stated that each of them had invested RM30,000 as capital and that after salaries and interest were paid they would share equally in any profits.
Describe if the arrangement between Geetha, Joe and Augustine fulfil the requirements of a partnership.
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Answer:
1) Partnership agreement- this is the legally binding document that can be either be in written or oral form.
2) Financials- the agreement must contain how they intend to share profit and losses.
3) Ownership percentage- the partners commit what each is going to contribute to the business, this can be in terms of capital which usually dictates each partner's percentage of ownership.
4) Agency relationship- the business objectives maybe carried out by all or one of them to represent the others. In this case Geetha and Augustine work full time in the business.
All the above requirements are met in the above arrangement, hence they fulfill the conditions of a partnership.
