Partner Guarantees and Loss Distribution in a Partnership

In a partnership, when one partner gives a guarantee to another partner, the loss incurred on that guarantee is borne by the partner who provided the guarantee. This means that the correct answer is option 'C'.

Explanation:

1. Nature of Partnership:
A partnership is a form of business where two or more individuals come together to carry on a business with a common goal of making a profit. The partners invest their capital, share responsibilities, and contribute to the success of the business.

2. Partnership Agreement:
Partnerships are governed by a partnership agreement, which is a legal document that outlines the rights, duties, and obligations of the partners. This agreement may include provisions related to profit sharing, decision-making, investments, guarantees, etc.

3. Guarantee in a Partnership:
A guarantee in a partnership refers to a promise or assurance given by one partner to another partner regarding the performance of a specific obligation or the fulfillment of a certain responsibility. It can be in the form of a financial guarantee, where one partner assures the other partner that they will cover any losses or liabilities arising from a particular event or transaction.

4. Loss Distribution:
When a partner provides a guarantee to another partner, it means that they are taking on the responsibility of covering any losses or liabilities that may arise from the guaranteed event or transaction. Therefore, if a loss occurs due to the guaranteed obligation, the partner who gave the guarantee will bear the loss.

5. Rationale behind the Distribution:
The reason behind the partner who provided the guarantee bearing the loss is that they voluntarily assumed the risk associated with the guaranteed obligation. By giving the guarantee, they demonstrated their confidence in the success of the transaction or event. Therefore, if the transaction or event results in a loss, it is fair for the partner who provided the guarantee to bear the consequences of their decision.

6. Impact on Other Partners:
The loss on the guarantee will not be borne by the partnership firm as a whole or by all the other partners. The loss is specific to the partner who gave the guarantee. However, the loss incurred by this partner may indirectly affect the partnership as a whole, as it may reduce the partner's capital contribution or their ability to contribute to the partnership's future endeavors.

In conclusion, when one partner gives a guarantee to another partner in a partnership, the loss on such a guarantee is borne by the partner who provided the guarantee. This distribution of loss is based on the voluntary assumption of risk by the guaranteeing partner and is in line with the principles of fairness and accountability in a partnership.