Partnerships are governed by the provisions contained in the Partnership Act, 1890, and in the Limited Partnerships Act, 1907, and also by the rules of equity and of common law applicable to partnerships, except so far as they are inconsistent with the express provisions of those Acts. (Sec. 46 P.A. 1890 and Sec. 7 L.P.A. 1907.) The Partnership Act, 1890, merely codified the then existing law, whilst the Limited Partnerships Act, 1907, introduced into English partnership law the principle of limited liability in partnerships which, until then, had not been recognised in this country, though it has long been in force in some European countries and in the United States. Section 1 of the Companies (Consolidation) Act, 1908, limits the number of persons who can carry on business without registering as partners to twenty, except in the case of a banking business, when the number must not exceed ten. We may, therefore, consider partnerships as divided into two classes, ordinary partnerships, where the liability of all the partners is unlimited, and limited partnerships, where the liability of one or more partners is limited, and the liability of one or more is unlimited. For the purpose of dealing with Partnership Accounts, it will, however, be sufficient to deal with ordinary partnerships only, preceded by a few supplementary remarks as to the special features of a limited partnership. DEFINITION.A partnership is defined by Section 1 of the Partnership Act, 1890, as ” The relation which subsists between persons carrying on a business in common with a view of profit,” but this definition is not absolutely conclusive, and Section 2 of the Act lays down certain rules for determining whether a partnership does or does not exist. The term ” business ” is defined by Section 45 as including every trade, occupation or profession, but this too, appears subject to qualification, particularly as regards persons who are engaged in an occupation in contradistinction to a business, as in the cases of joint ownership, tenancy in

Partnership is a contract of a consensual nature, that is, it is formed by consent alone, and no special formality is required in establishing the same. It is very rare, however, for the contract to be made in this manner. The common practice is for all the terms to be embodied in a written agreement or a deed, and the document thus prepared is styled the ” Articles of Partnership.” These articles require the most careful preparation, and, as everything must depend upon the special circumstances of the business, the different experiences of the parties, the amount of capital to be provided by each, the supervision to be undertaken, and a host of other things of a similar character, no general rules can be given for guidance. Precedents should be consulted, and variations made in them in accordance with the requirements of the individual cases. The articles bind the partners as between themselves, but they have no binding authority upon the outside world, except as far as those persons are concerned who are cognisant of their contents. They differ, in this respect, from the Articles of Association of a joint stock company which are common property and which any person who had business relations with the company must be assumed to be acquainted with. Since they are made by the mutual consent of the parties, the articles may be varied at any time if all the parties agree to the same. (See also Auditing, p. 110 ; Partnership Accounts, p. 737.)

A system of fraud that happily is not frequently resorted to owing to practical difficulties, is that whereby defalcations are concealed by means of a duplicate Pass Book and Paymg-in Book. This would generally necessitate the crime of forgery in addition to that of embezzlement; but while such cases have occurred where control over the Banking Account has been left in the sole charge of the defaulting cashier, it seems inconceivable to imagine such a system could be successfully earned on for any length of time where an effective audit is in operation. Tampering with the entries in a Pass Book is again a falsification which is fortunately not common It might be possible for a cheque, say lor

A debt upon which no interest is payable by arrangement between debtor and creditor, as distinguished from an active debt upon which interest is payable.

Trusts to which no duties are attached. A trust of this kind was originally created under the Statute of Uses to escape the hardships entailed under the rules of the common law. Other instances of passive trusts are those created to preserve contingent remainders and to prevent dower. In each of these cases there is absolutely nothing for the trustee to do. If a trustee has any duty whatever to perform the trust is called an ” active trust.”

(See Accounts, Criticism of, p. 18 ; Depreciation, p. 412 ; Renewals and Depreciation.)

In many cases the intrinsic value and residual value of patterns and drawings is comparatively small, and in such cases it is advisable that they should be regarded as revenue charges and treated as such. Where there has been a considerable expenditure upon these subjects and an exceptional value attaches to them because of the use to which they are put, they may be temporarily capitalised. In any case, however, they are assets which very quickly wear out and have little residual value. The rate of depreciation which should be applied to them is, therefore, a heavy one. They should be extinguished certainly within not less than three or four years. If they are not likely to be used, for more than a single season, the whole cost should be charged against the current period’s revenue. The auditor should assure himself of their existence by having a duly vouched inventory produced to him, and should satisfy himself that an adequate provision has been made for the loss in value by depreciation.

This is the delivery of the possession of goods or of documents of title to goods by one person to another as a security for a debt. The person to whom the goods are delivered is entitled to retain them so long as the debt is outstanding, and, if the due date of repayment passes by, to sell the same and reimburse himself, handing over any balance that remains to the pledgor. If, on the other hand, the sale does not realise sufficient to cover the amount of the debt, the pledgee can sue the pledgor for the difference. It will be at once obvious how a pawn or pledge differs from a lien (q.v.). So long as the goods remain in the possession of the pledgee, he must exercise all reasonable care with regard to them, otherwise he will be liable to the owner. Moreover, he must not make use of them if they are liable to deterioration by usage. Special rules apply to pawnbrokers, who are persons licensed to carry on the business of taking goods and chattels in pawn. The rights and the liabilities of pawnbrokers are provided for by the Pawnbrokers Act, 1872. The principal of these are as follows (1)The Act does not apply to loans of more than ^10. (2)The pledge must be authenticated by a pawn-ticket. (3)Every pledge may be redeemed at any time before sale, except that where the amount lent is not more than 10s. the pledge becomes the absolute property of the pawnbroker after twelve months and seven days. (4)If the loan exceed 10s. the pledge must be sold by auction. Any balance, after the expenses of the sale, the loan, and the interest have been paid, belongs to the pledgor, who is, in turn, liable to be sued for any deficiency. (5)Special contracts may be entered into when the amount of the loan exceeds 40s., and must be authenticated by special pawn-tickets signed in duplicate. The rate of interest which a pawnbroker is entitled to charge is (a) On pledges for sums not exceeding 10s., one halfpenny for every month or part of a month on each 2s., and a halfpenny for the ticket. (6)On pledges for sums between 10s. and 40s., the same rate as before, and one penny for the ticket. (c) On pledges for sums between 40s. and

Contributions to a Pension Fund are debited to the Profit and Loss Account and credited to the fund. Payments to the pensioners are then debited against the fund, the balance of which appears amongst the liabilities in the Balance Sheet. In the case of a public company, the contributions to the fund must be supported by resolutions of the directors or the shareholders, as the case may require. The auditor should ascertain that the creation of the fund is inter vires the directors or the company. The pensions paid will be vouched by the production of the pensioners’ receipts. Additional pensions granted from time to time will be verified by reference to the minutes. In addition to this, it is advisable to have a schedule of the pensions paid, made out and certified by a responsible official, and for the directors to pass a minute authorising or confirming the payments. (See Annuities to Employees.)

This means that, where a man dies leaving children, they share his personal estate between them. (See also Executorship Accounts, p. 448.)

This is ihe common way of using the two Latin words per procurationem, abbreviated as per pro. or p.p., and the meaning of the phrase is that an agent signing a document with per pro., or p.p. written before his name, holds out to the world that he has authority to sign on behalf of the principal named. An agent is not personally liable if he signs for, or on behalf of, his principal, and clearly indicates that he is only acting in a representative capacity. But if the agent simply adds words of description to his name, he will not escape liability. Thus, if A B signs ” Per pro. C D Limited, A B,” he is not liable ; but if he signs, ” A B, agent for C D Limited,” he is liable. When an agent signs per procurationem, it is essential that the other party to the contract should ascertain the extent of the agent’s authority, especially when it is a question of a bill of exchange, for by the Bills of Exchange Act, 1882, it is provided, in the 25th section ” A signature by procuration operates as notice that the agent has but a limited authority to sign, and the principal is only bound by such signature if the agent in so signing was acting within the actual limits of his authority.”

This is applied to a grant of letters of administration over the head of one who may have a prior right, (See also Executorship Accounts, p. 448.)

Percentage statements form important aids to the interpretation of financial accounts and to the

An action against a person, or action in personam which settles the question in dispute as to a particular individual and fixes his liability. It is to be distinguished from a real action (q.v.) which affects the right in the property of a certain thing as against the whole world.

The Ledger containing the accounts of persons with whom business is done, comprising both ordinary trade creditors and trade debtors.

The cash utilised for small payments, such as postages, tram and railway fares, small cash purchases, cleaning, and incidental expenses, is known as Petty Cash ; it is important that these items be carefully recorded and find their way to the respective Nominal Accounts. Not being of sufficient magnitude to be dealt with separately, they should be kept in a special book for the purpose, the matter usually being placed in the hands of a person subordinate to the cashier. In small firms the only method of treatment is to enter them up as they take place, the total of the book at any moment being part of the cash expenditure, which must be taken account of in balancing the cash, the book being totalled and analysed and the posting made through the Cash Book periodically. In this case the Petty Cash Book should be as shown in the opposite column. A much better method, however, is to adopt the system known as the Imprest System (q.v.) and a better form of Petty Cash Book provides for the analysis as the expenditure takes place, the specimen shown on page 778 being adapted to meet the requirements of the Imprest System. (See also Investigations, p. 586; Self-Balancing Ledgers, p. 850.)

The sums charged to Plant and Machinery Account in respect of additions thereto, should be carefully scrutinised by the auditor. He should satisfy himself, as far as possible, that such additions are legitimate capital expenditure. In cases of doubt he may even go so far as to inspect the reputed additions himself, though this extreme step should be rarely necessary. In any event he should require upon each invoice, the contents of which are allocated to capital, the certificate of the engineer that the expenditure is a proper capital addition, and not merely a part of the cost of the upkeep of the plant and machinery. The certificate should be supported by some other responsible person, preferably the managing director, or other director. The auditor should further see that a resolution authorising the additions to the Plant and Machinery Account is properly recorded upon the minutes of the directors’ meetings.

A bond in which a person, for a present pecuniary consideration, undertakes to pay a certain sum of money after the death of some particular individual from whom the borrower has financial expectations. A bond of this kind is not illegal, provided the borrower is a person of contractual capacity; but if there be any fraud, duress, or bargain of an unconscionable character, the Court will inquire into the whole transaction, and make such order as to repayment or otherwise as it thinks just under all the circumstances.

This is the name given to a settlement which is made after marriage. Marriage is a valuable consideration in law; and, unless the circumstances are connected with fraud, an ante-nuptial settlement is always valid against the trustee in bankruptcy, provided the settlement is not for the future payment for the wife, husband, or children, under Section 42, Subsection 3 (c) of the Bankruptcy Act, 1914. But if the settlement is a post-nuptial one, that is, made after marriage, it is no other than a voluntary settlement, and although binding upon the parties themselves, is void against the trustee in bankruptcy, if the bankruptcy takes place within two years of the date of the settlement, and also if the bankruptcy takes place within ten years of the date of the settlement, unless it is proved that the settlor was able, when the settlement was executed, to pay the whole of his debts without the aid of the property comprised in the settlement. After ten years a voluntary settlement is just as secure in bankruptcy proceedings as a settlement which is supported by a valuable consideration. (See Voluntary Settlement.)

These are the creditors in bankruptcy whose claims are not admitted for the purpose of ranking for dividend until other creditors have been fully satisfied. (See Bankruptcy, Deferred Debts in).

The general meaning of this term is any order or direction given by a responsible person for the payment of a particular sum of money or the doing of a specified act. In its narrower sense the word is applied to denote the written warrant of a magistrate.

A preferential option of purchase when any property is to be offered for sale. It occurs very frequently in partnership articles, where it is stipulated that upon the dissolution of the partnership the partner who is continuing the business shall have the right to purchase the interest of any outgoing partner or partners before the same is offered to any other person.

The right of an executor to pay one creditor before another of the same degree. (See also Executorship Accounts.)

Under the provisions of the law applicable in bankruptcy and in the winding up of joint stock companies, certain creditors are entitled to be paid their debts before other creditors can be admitted to enforce their claims. The rules as to these preferential claims may be summarised as follows, and the following are the payments which must be made before the other creditors are considered (a)All parochial or other local rates due from the bankrupt or the company at the date of the receiving order or the commencement of the winding-up, and having become due and payable within twelve months next before that time, and all assessed taxes, land tax, property or income tax assessed on the bankrupt or the company up to the fifth day of April next before the date of the receiving order, or the commencement of the winding up, and not exceeding in the whole one year’s assessment. (b)All wages or salary of any clerk or servant in respect of services rendered to the bankrupt or the company during four months before the date of the receiving order, or the commencement of the winding up, not exceeding

(See Auditing, p. 78 ; Balance Sheet, p. 142 ; Capital Receipts; Profit and Loss Account, p. 788.)