When two or more than two persons run a business jointly, they are called partners in the business and the deal between them is known as partnership.
Partnership is of two types:
1. Simple Partnership
2. Compound Partnership
1. Simple Partnership: When investments of all the partners are for the same period of time, the profit or loss is distributed among the partners in the ratio of their original investments.
Suppose A and B invest ` p and ` q respectively for a year in a business, then at the end of the year. Share of A’s profit (loss) : Share of B’s profit (loss) = p : q.
2. Compound Partnership: When investments of all the partners are for different period of time, then equivalent capitals are calculated for a unit of time and the profit or loss is divided in the ratio of the product of time and investment.
Suppose A and B invest ` p and ` q for x months and y months respectively, then Share of A’s profit (loss): Share of B’s profit (loss) = px : qy.
Partners are of two types:
(i) Working Partner, and
(ii) Sleeping Partner
(i) Working Partner: A partner who manages the business is called a working partner.
(ii) Sleeping Partner: A partner who only invests the money is called a sleeping partner.