Partnership Agreement

Saptaparni Raha
Sep 11, 2022
2 min read

Written by Saptaparni Raha, Lawyer

Introduction:

A contract signed by two or more individuals to initiate a business together is known as a partnership agreement. Each partner is responsible for the debt of an organisation after entering into the agreement.

Importance:

The tax status shows that the partner is dispensing profits to each partner based on the accounting practices to avoid tax problems.
This agreement helps to avoid liability and legal issues.

Essential Clauses:

These clauses are divided into Four parts:

The first part provides detailed information about the business.
Parties entering into the agreement need to state the name and place of their business clearly. It is also essential to mention the registered place of the firm.
They need to specify all the rights and liabilities of their business clearly.
The duration of the agreement must be mentioned.
As a partnership firm is a separate legal entity, it is important to get a deed registered in accordance with the law.

The second part of the agreement would specify the total amount of money contributed by each partner.
It also discusses the ratio and percentage of the profits or losses that will be distributed.
It is also important to specify the amount of drawing money by the partners for their personal use.
The procedure of borrowing money from a bank or any financial institution should be discussed unanimously in writing.
Firms shall have separate accounts for all transactions.

This part discusses the duties of partners like payment of the contributions.
This part contains the clause related to prohibited acts of the partners; it may be subject to the consent of all the partners.
The partner should devote their full time, which needs to be mentioned in a separate clause.
Partners cannot engage in a similar business after leaving the firm.
The partner should maintain confidentiality.
The procedure of adding a new partner should be included.
The procedure of retirement should be specified.
Conditions of termination of any partners should be stated.

This part discusses all the intellectual property created during the business that is owned by the firm. No partner can claim it.
The next clause discusses the goodwill of the firm
The following clause discusses the process regarding the dissolution or winding up of the firm.

Conclusion:

When two or more persons seek to establish a business, it is very important to explicitly define the legal relationship between themselves for a better understanding of the rights and duties of each individual regarding the business.

References:

BYJUS. What is a Partnership Agreement. retrieved from https://byjus.com/commerce/what-is-a-partnership-agreement/
Prateek Giri. (2021). Important clauses of the partnership agreement. retrieved from https://blog.ipleaders.in/important-clauses-partnership-agreement/