How to Form a Partnership

Section I A 

Formation of a partnership form of business entails some processes and methods that partners proprietors are supposed to follow according to the formation act. Some of the major issues that must be addressed before its formation include partner investment, distribution of profits and losses, partner withdrawal, partnership liquidation among others. A partner’s investment of assets to acquire a partnership monetary interest is normally accounted for using the bonus, exact or goodwill method ( Biddle, et al, 2015). Profits and losses are split in equal shares among all members or according to specific set rules whereas withdraw of a partner uses similar methods as investment. All these procedures have to be accounted for in the balance sheet, for instance, withdrawal of a partner means a reduction of total capital whereas distribution of profits and losses triggers the organization’s cash and bank balances. 

B 

Profits and losses should be split equally according to rules stipulated by the partners, for example, as per the contribution ratio. For instance, partners Larry, Moe, and Curly enter into a partnership agreement where profits and losses are shared 70:20:10. If there is no agreement, it is assumed that splitting of profits and losses are equal among all partners. Guarantee payments, such as salaries and others are a deduction before any losses or profits are shared among the three partners ( de Andrés , et al, 2012). Except if the agreement states otherwise, the payments must be remitted and may escalate a partnership loss. 

C 

Dissolving of a partnership means individuals are no longer partners in a technical legal sense. Nonetheless, the company carries on for the limited reasons of winding up the partnership. The processes involve disposing the partnership’s assets, payment of debts, and sharing the remainder of the money to all partners or their heirs. Generally, after the dissolution procedure every partner has a right to take part in the winding up process and share in the allocation of assets. In the case that dissolution takes place because of the death of a partner, the remaining partners take full responsibility of winding up and sharing the remains amongst themselves ( Hillegeist , et al, 2004). The law stipulates that if one partner becomes insolvent, the business must be winded up. However, in the case of a large corporation, the remaining partners may decide to buy the insolvent partner’s interests from the trustee or liquidator of the insolvent member. 

D 

Trevor Company is a partnership involving three members, partner 1, partner 2, and partners 3. It is essential to note that the figures are imaginary. Calculations in excel titled ‘CASH DISTRIBUTION SCHEDULE.’ 

Section II A 

In the case bankruptcy orders are made against all the members of the company, the official receiver may decide to apply, according to Article 14 of the (IPO 1994), for directions that the partnership is concluded and the cases as if the company was wound up at the same time as partners were rendered bankrupt. In such a case, the appointed receiver can deal with the partnership assets to the advantage of creditors. If the partnership decides to file for bankruptcy, a partnership should consider if it is able to pay its debts in time. In such a case, then bankruptcy may not be considered unethical, and is therefore not imperative ( de Andrés , et al, 2012). Bankruptcy rules define what is unreasonable and reasonable by providing a formula founded upon expenses, income, and the amount of debt. 

When an organization is forced into bankruptcy, in most case what actually happens is that the firm filed for a voluntary bankruptcy petition as per Chapter 7 or 11 of the United States Bankruptcy Code in reply to the creditor ( Hillegeist , et al, 2004). In the case the company is served with a statutory demand, the first step is to seek advice from experts if the bankruptcy would affect the business and their families. Bankruptcy is a good option in the case that the organization is facing financial problems (The partnership should consider responding within 21 days after the order is made, with payment or negotiation of an offer ( Biddle, et al, 2015). If the members think they are well equipped to challenge the order, they should apply to have it nullified in a period of 18 days of the statutory demand. If the order is cancelled, the creditors are required by law not to continue filing bankruptcy demands. 

In excel file folder titled ‘CREDITOR HYPOTHETICAL CALCULATION.’ 

References 

Biddle, G. C., Kim, J. B., Ma, M. L., & Song, F. M. (2015). Accounting conservatism and bankruptcy risk. Available at SSRN 1621272 . 

de Andrés, J., Landajo, M., & Lorca, P. (2012). Bankruptcy prediction models based on multinorm analysis: An alternative to accounting ratios. Knowledge-Based Systems , 30 , 67-77. 

Hillegeist, S. A., Keating, E. K., Cram, D. P., & Lundstedt, K. G. (2004). Assessing the probability of bankruptcy. Review of accounting studies , 9 (1), 5-34.