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A partnership deed is a written document on the basis of which the partnership firm shall be carried on.
“PARTNERSHIP” is an association or a relation between two or more persons who have agreed to form a lawful business and to share the profits of a business carried on by all or any of them acting for all.
It is an association of two or more persons joined together with a common objective to establish a business of their choice and with the motto to earn and share the profit with us. Therefore all partners of a firm mutually agreed to share all profits and loss of the business in a predefined shares/ ratio.
Persons who have entered into a partnership with one another are called individually, “PARTNERS” and collectively “A FIRM”, and the name under which their business is carried on is called the “FIRM-NAME”.
WHAT CONSTITUTE A PARTNERSHIP
Basically, there are 3 elements that require constituting a partnership
WHO CAN BE THE PARTNER?
As per the act, only a natural person and the legal person who are competent to enter into a contract can be the partner in a partnership.
CAN A HUF OR A FIRM BE THE PARTNER IN A PARTNERSHIP?
As the HUF (HINDU UNDIVIDED FAMILY) or firm is not a legal people, hence cannot be the partner in a partnership firm.
CAN A KARTA OF HUF BE THE PARTNER IN A PARTNERSHIP FIRM?
Yes, a KARTA of HUF as an independent natural person can be the partner in a partnership firm but the other members of the family do not by the act itself become partners.
CAN A MINOR BE THE PARTNER IN A PARTNERSHIP FIRM?
No, a minor cannot be the partner in a firm but with the consent of all the partners, he can be admitted to the benefits of the firm.
CAN A NEW PARTNER BE INTRODUCED IN A RUNNING FIRM?
Yes, anytime with the consent of all the existing partner a new partner may be introduced.
CAN A PARTNER BE RETIRED FROM THE FIRM?
Yes, a partner may retire:-
PARTNERSHIP AT WILL
A partnership in which no clause is made by the partners in the agreement in respect to the duration of their partnership, or for the determination of their partnership, the partnership is “partnership-at-will”.
CAN A PARTNERSHIP FIRM BE DISSOLVED?
Yes, a firm may be dissolved with the consent of all the partners or in accordance with a contract between the partners.
TYPE OF PARTNERS
WHAT SHOULD A PARTNERSHIP AGREEMENT INCLUDE?
The points required to be mentioned in the agreement are as follows:-
Name of the Partnership Firm; in the name and style of which the business shall be carried on by all or any of them acting for all.
Introduction of partners; their name, a complete residential address, occupation and their qualification and all other information essential to disclose.
The term of a Partnership Firm; time period from when the business shall be commenced; a partnership can be perpetual or for a specific term length.
Principal place of business; a complete address of a business where the business shall be carried on.
Purpose of the business; for what purpose the partnership is being constituted. Is a complete disclosure of the activities partnership engaging in? Description of products or services to be added in.
Types of Partners; partners constituting a partnership are of which type. The partner may be an active partner, dormant partner, sleeping partner.
The contribution of Partner; what amount a partner is contributing to establishing a business; whether a partner is contributing any property like intellectual property or any services.
Profit sharing ratio; what would be the profit sharing ratio and besides profit what else would be distributed among the partners.
Business expense; how the business expenses like Rent of the premises, all rates, taxes, payments for insurance, and other expenses in respect to the buildings used by the partnership, and the wages for all persons employed by the partnership shall be distributed among the partners.
Books and Records;
Accounting; what would be the financial year of the partnership firm and when the books of account along with the profit and loss account and Balance Sheet shall be prepared. Once al the financials are prepared the same shall be signed by each partner and bound by every account, except that if any manifest error is found in an account book by any partner and shown to the other partners within [NUMBER] months after the error shall have been noted by all of them, the error shall be rectified.
Admission of a new partner; how the new partner will be admitted and what will be the new partner contribution. What will be the liabilities of the new partner?
Non-Disclosure clause; these clauses are essential to restrict the partners of the firm to not to disclose the information of proprietary business of the firm.
Arbitration; If any dispute shall arise between or among the partners as to their rights or liabilities under this agreement, or in respect to any clause or under any instrument made in furtherance of the partnership business, the dispute shall be determined and the instrument shall be settled by the arbitrator, acting as arbitrator, and the decision shall be final as to the contents and interpretations of the instrument and as to the proper mode of carrying the provision into effect.
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