Sometimes a partner is admitted into the fifth: Who is having a specialized knowledge in a particular field, e.g., sales and marketing, professional efficiency of specific type, etc. Such type of partner wants a minimum guaranteed amount as share in the profits of the business from the other partners. Such a guarantee is given either by (a) one of the old partner or (b) all the partners in a certain ratio.
Such type of guarantee can be given in four ways as follows:
(i) Guarantee by the firm
(ii) Guarantee by a partner
(iii) Guarantee by a partner to the firm
(iv) Guarantee by a partner to the firm and guarantee by firm to a partner
(i) Guarantee by the Firm: This situation arises when profit of the firm is not adequate or in case of loss, therefore, the payment of minimum guarantee profit is not possible to the partner who has been given such a guarantee. In such situation, minimum guaranteed amount or any shortfall in it would be borne by remaining partners. However, in case his share in profits is over and above the guaranteed amount, he would get share in profit as per profit ratio agreed among partners at the time of his admission.
(ii) Guarantee by a Partner: First of all distributable profits of the firm will be distributed to the partners in their profit sharing ratio. Afterwards, if there is any share shortfall in the guaranteed amount, the required profit would be adjusted by deducting from the share of profit of the partner who has given such guarantee. The same adjusted amount would be added in the share of guaranteed partner.
