It is required that there is a contract between the parties in order for the partnership to exist. A partnership contract need not be expressed in writing and could be implied from the facts. The law requires no particular formalities to be complied with for a partnership contract to be concluded. It would be advisable for such a partnership contract to be in writing as to assist with clarity and resolving disputes. A company is an artificial person and therefore has legal personality for all purposes before the law. A partnership, however, is not a legal person separate and apart from its partners, but merely a group of persons acting jointly.
Partnerships are not governed by commercial legislation that dictates a requirement for drafting annual financial statements. However, there is a duty in terms of common law that all partners should keep proper accounts of all partnership transactions and use of partnership assets. The partnership contract, therefore, governs the individual person’s obligations and entitlements. The requirement for annual financial statements and which accounting standards apply could be determined in the partnership contract and the possible users of such financial statements. In most cases the partnership contract is silent in this regard, or has a generic requirement to produce financial statements without reference to format, standard, or type of professional to draft such.
When a partner wants to enforce his rights as a partner against any of his co-partners there is a requirement of settlement of account. This is where partnership profits and share of assets is determined.
The partnership will be required to keep accounting records. The financial information is most often used by the partnership for determining profit splits, banking and financing requirements, and for disclosure to SARS in determining the tax liability of each partner. Our Income Tax Act and Value-Added Tax Act have evolved to recognise partnerships. It would be advisable to have some standard to use to ensure compliancy and consistency.
It would be advisable that financial statements should be drafted in conformity with the accounting framework, which will broadly comply with generally accepted accounting practices.