Final answer:
A new partner providing a bonus to existing partners compensates them for their established goodwill and adjusts for changes in profit-sharing ratios. It's a sum paid over the capital contribution, reflecting the value of the ongoing business prior to the new partner's entry.
Step-by-step explanation:
When a new partner enters into a partnership and provides a bonus to the existing partners, it represents a financial incentive given to the current members of the partnership.
This bonus is usually a sum of money that is paid over and above the value of the capital contributions with the intent to compensate the existing partners for their established goodwill and to acknowledge the shift in profit-sharing ratios that may occur as a result of the new partnership agreement.
As a partnership is a type of business entity where partners share in the profits and losses, the infusion of a bonus by an incoming partner may effectively buy them a stake in the partnership's future earnings without directly purchasing an existing partner's equity.
This can acknowledge the value created by the current partners before the new individual joined. Moreover, the dynamics of responsibility and liability within the partnership might change, as partners are responsible for each other's actions and the debts incurred by the partnership, which could become more complicated with the addition of new members.