Partnership agreement
A partnership agreement sets out the partners’ rights and responsibilities and how the business’s results are shared. It commonly specifies capital contributions, profit-sharing ratios, partner salaries, interest on capital and drawings, and arrangements for changes in membership. Apply the agreed terms to appropriations rather than treating every payment to a partner as an operating expense. Legal default rules vary by jurisdiction.
Worked example
An agreement gives A a $12,000 salary appropriation, interest on capital at 5%, and shares the residual profit between A and B in a 3:2 ratio.
Common mistake
Do not invent a universal equal-sharing or interest rule if the question supplies different agreed terms.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | K1 | Direct | July 2027–August 2028 |
Related terms
Also called: Partnership deed