Definition: When two or more two persons/partners invest in a business for a certain time, to get some profit, that’s called partnership. Or When two or more people invest money in a business, persons are called Partners, their relationship is called Partnership, and money/amount invested is called Capital.
Types of Partnership:
- simple partnership: If they invest money for the same time, it is called a simple partnership.
- compound partnership: If they invest money for different times, it is called compound partnership.
Types of partners:
Active partner: The person, who invests his money as well as his time in the business is called an active partner.
Sleeping partner: The person, who invests only his money, not the time is called a sleeping partner.
Note: Active partners always get a salary for managing the business, and that salary is given from the profit earned.
- Profit is directly proportional to Time and Investments.
- If two partners A and B invest capitals CA and CB and invest their money for TA and TB time periods respectively. Then the Ratio of their respective shares in Profit: PA : PB = (CA x TA) : (CB x TB)
- If two partners A, B, and C invest capitals CA, CB, and CC and invest their money for TA, TB, and TC time periods respectively. Then the Ratio of their respective shares in Profit: PA : PB : PC = (CA x TA) : (CB x TB) : (Cc x Tc)
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