What is Indian Partnership Act?
The Indian Partnership Act, 1932
According to Section 4 of the Partnership Act,1932
“Partnership is the relation between persons who have agreed
to share the profits of a business carried on by all or any one of them acting
for all”.
Nature of Business
It is a business organization where two or more persons agreed to join together to carry out the business for the purpose of earning the profits. It is an extension of a sole proprietorship. It is better than sole proprietorship because in sole proprietorship the business is carried out by the individual with limited capital and limited skill. Due to the limited resources of a single individual carrying a sole proprietorship, a larger business requiring more resources and investment than available to the sole proprietor cannot be thought of such business. On the other hand in partnership, a number of partners join together with their capital to form an agreement and carry out a business jointly.
Essential requirements of a partnership
~It must be an association of two or more persons.
~There must exist an agreement between the partners.
~There must be a business undertaking or a commercial activity that is lawful.
~The motive must be to earn the profit and share between the partners.
~The agreement must be to carry out the business jointly or by any of them acting on the behalf of all i.e., there must be mutual agency.
Partnership Agreement
A Partnership Agreement is a contract between two or more business partners. The partners use the agreement to outline their rights responsibilities, and profit and loss distribution. The agreement also sets the general partnership rules, like withdrawals, capital contributions, and financial reporting.
Why is having a Partnership Agreement valuable?
A
Partnership Agreement is valuable because it sets out each partner's rights and
responsibilities. Further, it allows the partners to customize the law as it applies
to their partnership.
Elements of
a Partnership Agreement
Most partnership agreements share some common elements . When you're drafting yours, ensure you include the following categories:
Name: Include the name of your business.
Purpose: Explain what your business does.
Partners' information: Provide all partner's names and contact information.
Capital contributions: Describe the capital (money, assets, tangible items, property, etc.) that each partner provided.
Ownership interest: Offer the specific percentage of the company that each partner owns.
Profit and loss distribution: Explain the percentage of profit and loss assigned to each partner and how the company will distribute revenue.
Management and voting: Outline how the partners will manage the company by delineating individual responsibilities in addition to explaining decision-making and voting between partners.
Adding or removing partners: Create specific guidelines for adding new partners, removing partners who want to leave, and removing partners who don't want to leave.
Dissolution: Describe how you'll liquidate the business and share out any profits should the company dissolve.
Partnership tax elections: Assign a partnership representative to manage all tax communications.
Death or disability: Provide clear instructions for how each partner's ownership in the company should be liquidated or redistributed in the unlikely event of their death or disability.
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