Resource Checklist To Make Your Partnership Tick

Thinking of trading under a Partnership ?

Wondering how far this business arrangement could prosper your dreams ?

We have all the answers to help you and your colligues make the smartest decisions for your new small business.

Legal Definition

A partners business is an arrangement almost similar to a sole proprietorship whereby two or more people form a business unit in which each person is a member.

It is quite essential for you and your associates to draw up a legally binding business agreement or deed.
This agreement will not only protect your interests in the business, but also commit upon you and your associates to think through issues such as roles, responsibilities, exit routes, and so on.

This agreement will enable your small business fix all financial details such as each partners remuneration, the amount of capital you have to put into the business and each members responsibilities and voting rights.

Advantages

• You may take in new members to raise finance or to provide specialist services


• as partners, you may provide mutual support and improved decision-making through discussion and debate


• partners will bring to the business different skills, knowledge and experience


• There is no statutory requirement for audit, unless sanctioned by creditors .

Disadvantages

• you take personal liability for all business debts including those incurred by the other partners


• the deed requires you to consult with your partners in making decisions, hence you are likely feel a loss of autonomy besides a potential for disagreement with your associates


• decision-making may take longer as consensus must be reached amongst you all


• different partners may have different aims and targets for the business


• conflict may arise between fellow partners on personal and/or business grounds.

Record keeping

No matter what type of small business you are involved with, it is always essential that as a running business , you keep proper accounting records which are sufficient to explain and track all of the transactions in your business.

Not only do accurate records provide information on how well your business is performing, they also provide the basis for the figures you enter on the self assessment tax return at year end.

This means that by law your figures have to be accurate and verifiable. Tax law mandates upon you to keep all the records you used to fill in the tax return. If you do not keep records, it is impossible to show what you have earned and what you have spent.

Unlike limited Companies where the owners (shareholders) submit tax returns for the business which is seen to be an independent entity, all owners in a partnership are taxed individually on their earnings in the business.

The Income tax act states that a partnership shall be liable to furnish a performance return of income, were income refers to gross income less allowed expenses.

By law, you must keep all your records for at least five years forward from the latest date upon which you are sending your current tax return. However, it is up to you to decide how you keep the records.

Your Tax Office may decide to look into your tax return or claim. If it does, it may want to look at your accounting records. It will save you time if you can show that the records you have kept are complete and accurate. It can also save you money as you can individually be fined $ 000’ for each year that you fail to keep proper records.

The exact records you need to keep will depend on the types of income or gains, tax deductible expenses, personal allowances, other deductions and reliefs you put on your tax return or claim. Whatever records you keep, they should be good enough for you to fill in your tax return or claim accurately.

If you claim business expenses, you will need to keep the necessary records to back them up. For example, if you use one of your homes for work, you will need to keep sufficient records to back up the proportion of heating and lighting costs that relate to your business and the host partner’s home private use.

On occasion you may not be able to obtain evidence (such as a receipt) for cash expenses, especially where the amounts are small. If this happens, recording is still important. Make a note as soon as possible of the amount you spent, when you spent it and what it was for.

As for your accounting records, you can either write them manually or computerize them. The best method will depend on the needs of your partnership business. But overall if done properly, computerized bookkeeping can save you a lot of valuable time and effort and also help you produce better information.

Having opted to transfer details from your manual paper records onto a computer, you will still normally have to keep the original paper records unless you microfilm them or use an optical imaging system.

You do not have to print everything out, as long as the information in the original documents can be recovered from the computer and satisfies the other rules for record keeping.

As an alternative to transferring data yourself, there are many agencies who will do the bookkeeping for you and leave you to get on with running your partnership small business.

Always remember to agree a fixed price and to ensure that you know exactly what you are getting for your money. This is especially important when the bookkeeping involves additional services such as payroll and VAT returns.

Accounting Records

Despite limitations to the legislation guiding a partnership business, your business will increasingly become accountable to entities like Customs for taxes, Social security fund for employee benefits, Banks and Micro finance institutions for soft loans.

Therefore, we encourage you to keep basic to full records as follows:

• A file of cash receipts


• A file of payment vouchers


• Details pertaining to your debtors and creditors


• Your Partnership deed or agreement


• Annual Trading/Municipal licenses


• A ledger book summarizing all receipts and payments


• A profit and loss account showing apportioned profits.


• A Trial balance for your partnership accounts


• A balance sheet showing capital investment and current account


• No requirement for audit because of cost and they are owner managed.

Your accounting guide wants you to pay only as much tax as you owe Inland Revenue, service your debts effectively, and remain profitable. However, if you cannot show sufficient evidence of your income and outgoings, you could end up paying more than necessary.

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