Analysis of a partnership contract

WHAT IS PARTNERSHIP

The Partnership is the relationship that exists between individuals, who decide to come together to share their skills and resources in business and pool in the capital and also share profits and losses, in an agreed ratio. The members of a partnership are severally known as partners and jointly it is known as a partnership firm. 

In India, it is governed by the Indian Partnership Act, 1932 and the partnership is formed as per the provisions of the Act. It starts through a legal agreement between partners, known as a partnership agreement. It lays down the terms of the business, rules, and regulations regulating the partnership, such as profit and loss sharing ratio, nature of the business, duties and obligations of partners, manner of conducting business or capital being contributed by each partner and so on.

WHAT IS A PARTNERSHIP CONTRACT

A Partnership contract, also known as Partnership Articles, is a document that sets out the terms of the partnership and details of the arrangements entered into. It is a written agreement between two or more individuals who collaborate as partners in creating and continuing business for profit. It's not always necessary that a partnership contract should be written. In a business conversation, people can form a verbally binding contract. Partnership article is a document that provides details of the legal relations between the business partners who have entered into the contract and their individual contributions and commitments towards each other and the business. 

A partnership agreement governs: 

- Relations among the partners, as partners and also between the partners and the partnership itself.

- The business of the partnership and the terms and conditions of the business.

- How the agreement can be amended

WHAT IS INCLUDED IN A PARTNERSHIP AGREEMENT

NAME OF THE PARTNERSHIP

RESIDENTIAL ADDRESS OF THE PARTNERS

NATURE OF THE BUSINESS

PRINCIPAL OFFICE

The place where all the documents will be delivered and primary work is carried on.

PROFIT SHARING RATIO

The ratio in which the profits will be shared between the partners.

CAPITAL SHARING RATIO

Capital contributed by each of the partners.

TERM OF THE PARTNERSHIP

A partnership can be perpetual or for a specific period.

GOVERNING LAWS

This helps to set the jurisdiction of any dispute between the partners.

ARBITRATION CLAUSE 

If any dispute arises, the parties have the right to settle the dispute through arbitration rather than going to court.  

RELATIONS OF PARTNERS TO PERSONS DEALING WITH THE PARTNERSHIP 

Other clauses that you might see in a Partnership Agreement

NON-COMPETITION CLAUSE: 

This clause restricts a partner from leaving the partnership and from competing within a specified area and period with the business of the partnership.

NON-DISCLOSURE CLAUSE, NON-SOLICITATION CLAUSE: 

These clauses restrict partners and former partners from disclosing proprietary business, or from soliciting employees or customers away from the partnership.

WHAT ARE THE TYPES OF PARTNERSHIP

GENERAL PARTNERSHIP

 A general partnership includes two or more owners sharing equal responsibilities, duties and rights with respect to the business administration and any individual partner can bind the whole group to a legal obligation. Each partner will take full responsibility for all the debts and engagements of the company.

LIMITED PARTNERSHIP

A limited partnership allows each partner to limit their liability to the amount of their corporate investment in the business. Not that every party can benefit from this limitation, at least one party will accept the general status of the partnership, committing him or herself to full personal accountability for the debts and obligations of the partnership.

LIMITED LIABILITY PARTNERSHIPS (LLP)

Limited liability partnerships (LLP) retain the tax advantages of the general partnership form but offers some personal liability protection to the participants. Individual partners will not be personally responsible for the wrongful acts of other partners in a limited liability partnership, or the debts or responsibilities of the business because the Limited Liability Partnership form changes some of the basic conditions of the traditional partnership. 

 STEPS OF PARTNERSHIP CONTRACT

The basic steps of a partnership contract are-

1-NAME, PURPOSE, DOMICILE- This lists out the details relating to the name of the partnership, the reason for the creation of the partnership and the place of work.

2- DURATION OF THE AGREEMENT- This includes the term of the agreement and the specifications regarding the commencement and termination date of the agreement.

3- CLASSIFICATION AND PERFORMANCE BY PARTNERS- A partner is classified as an advisory, estate or active partner.

4- CONTRIBUTION- This specifies the amount of capital to be contributed and the time within which it is to be contributed.

5- BUSINESS EXPENSE- The rent of the building in which the business is being carried on and the expenses regarding rent and alterations, maintenance, payment of taxes, wages of the employees etc.

6- BOOKS AND RECORDS- This lays down that proper books of account shall be maintained which shall be retained at the principal place of business.

7- ACCOUNTING- This shall enlist the fiscal year of the partnership with the commencement and expiration date. The general accounting shall be written in the partnership account books and signed in each book by each partner immediately after it is completed.

8- DIVISION OF PROFIT AND LOSS- This includes the profit and loss ratio entitled to each partner and also the time of distribution of profit.

9- AUTHORITY- This shall authorise a partner and the acts exceeding the qualified limit shall be carried out with his consent.

10- SALARY- That no partner shall receive any salary from the partnership and the compensation received shall be in accordance with the law.

11- RETIREMENT AND DEATH OF THE PARTNER- This deals with the time period within which notice is to be given for the retirement or the division of work between the existing partners. In the case of death of the partner, the original rights of the partners shall accrue to their heirs, executors, or assigns.

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