First, a quick tutorial on partnershops:
A partnership must have at least two partners holding any percentage of partnership interest. For example, one partner can have 99% interest and the other can have 1% or any combination that adds up to 100%. Keep in mind that a partnership is not limited to two partners; there can be as many partners as the partnership wants to have.
Limited Liability Partnership
Many states allow for limited liability partnerships, which basically means if you are a limited partner your liability for partnership debt is limited to your investment in the partnership. However, as a limited partner, you may not have any say so in how the partnership is run.
The partner capital accounts shows a few different items:
- Cash Contributions: This is any money you used to start the business. Many partnerships also have an on-and-off need over the years for an influx of cash which can come from any of the partners. It's a simple fact of doing business that sometimes you have to pay for businessexpenses before you collect the money from your customers.
- Non-Cash Contributions:When you started your partnership, you or one of your partners may have already personally owned some office, computer or shop assets that you gave to the partnership for business use. Therefore, you increase your partners' capital for the fair market value, which is what an unrelated third party would pay in an open marketplace, of the assets. For example, you have a computer that originally cost $800. Comparable used computers are selling online for $50. Your fair market value and additional to your partner capital is $50.
Current Net Income (Loss): Net income (loss) is the difference between your arts and crafts revenues and expenses. If your business revenues are more than your expenses, you have net income. If your business expenses are more than your revenue, you have a net loss.
How much money your arts or crafts business brings in at the end of day affects your partner capital account proportionately based on what's in the partnership agreement. For example, if the partnership agreement states you have a distributive share of 25% and the net income is $15,000, your distributive share is $3,750.
Partners' draw shows money and other assets the partner takes from the business to use personally. The amount of draws a partner is allowed to take can be different than their partnership interest. So even though you have two equal partners, it doesn't mean they have to take the same draw amount. This is cause of the differences in beginning and ending partners' capital accounts between partners shown on this page.