Your guide to partnership and how it can protect your interests
Before investing your savings in a joint venture, we advise you to opt for a partnership document that can protect your interests in times of any internal conflicts. Read more to learn about the benefits of a partnership, Power of attorney for property agreement and its contents.
It’s hard to be a jack of all trades. It is a known fact that when different people have different abilities and when they come together, the task seems more manageable and the organization generally improves.
However, running a business is difficult. This is one of the main reasons why entrepreneurs forming strategic partnerships are considered the second most effective way to do business in any country. Since time immemorial, merchants and traders have teamed up with a capable counterpart to manage their businesses. However, the idea of putting all your effort into a business that your partner could exploit at any time could be pretty scary. The legal practice of signing a partnership agreement is therefore considered essential before embarking on any new project together.
In order to define the act of partnership, let us understand what partnership means in legal terms.A partnership agreement is a legal document written when two individuals come together and decide to do business, regardless of the profits or losses incurred. This official document helps to ensure that both parties do not get into any misunderstanding, conflict or harassment over time. A partnership deed, also known as a partnership agreement, is registered under the Indian Registration Act, 1908, so there is no risk of its destruction in the custody of a particular individual. Whenever both partners wish to change the terms of the partnership agreement, they can do so. If the partnership firm somehow ends up in the courtroom, the partnership agreement serves as a legal document that can influence the final decision delivered.
Although it is not necessary to sign a partnership agreement before starting a business, the law strongly recommends that you protect your interests and assets.
What are some of the steps involved in drafting a partnership agreement?
Draft Agreement – Partners must select an agreement that includes all relevant facts and partners of the firm.
Obtain e-stamp paper — purchase the required amount of e-stamp paper and have the document printed on it.
Sign the deed by obtaining the signatures of all partners on all pages of the deed, acknowledging the norms and restrictions.
Whether the deed is notarized or registered is up to the partners to decide whether they want the deed notarized or registered.
Features of partnership deed
Below are some of the most important characteristics of a partnership agreement:
- Name and address of the company and its co-owners — the articles of association determine the name under which the company will operate in the future.
- Contents of the partnership deed – The partnership deed contains, in addition to the names and addresses of the owners, the names and current addresses of all partners.
- Nature of business – the deed specifies the type of business that will be operated.
- The location of all offices and headquarters shall be stated in the articles of association.
- Date and place of opening – the time and place of opening of the business must be clearly stated.
- The duration of the partnership, whether for a fixed period or a project, is also included in the deed.
- Owners’ capital contributions – the agreement should specify how much money each owner contributed.
- Profit sharing ratio — must indicate the share of earnings that the partners receive.
- Audit Details – Details of the audit procedure are also included in the collaboration agreement.
- Admission, retirement or death of partners – the regulations govern the admission, resignation or death of any partner in a chartered firm.
- Rights and obligations of partners — the partnership charter outlines all the rights of partners and their specific obligations.
- Settlement – in the event of the dissolution of the company, settlement is part of the partnership agreement.
Features and benefits that explain the partnership
Partnership businesses must have at least two members. The rights, duties and obligations of each partner must be spelled out in the registered partnership agreement to avoid litigation in the event of future disputes.
The partners must make a mutual decision before establishing the company. The ratio of distribution of profit and loss incurred by the organization must be stated in the partnership agreement to simplify the financial process.
There is no minimum and maximum limit on the capital invested by each partner of the firm. The partnership charter maintains control over the salary, commission and interest rate on the capital raised by each partner.
The documents you need for the partnership agreement
It is mandatory for two or more willing individuals to form a partnership. The Partnership Act 1932 governs all partnership registrations. Documents required to enter into a partnership –
- PAN card of all partners
- Address proof of all partners like Aadhar Card, Voter ID, Driving License etc.
- PAN of the company
- Proof of company address
- An official body must sign the documents required to register a partnership agreement between two partners.
- Partnership Firm Registration Procedure in India
Partnership contract registration process
The Indian Partnership Act, 1932 is the official law governing partnerships. It is entirely up to the partners whether they want to register their company or not. If they do not register, they will not be entitled to the benefits of a registered partnership firm. The registration process can take place at any time from the start of the business also you can do Partnership Firm Registration . However, your business must be registered by law if a lawsuit is filed.
To register a partner company, submit an application and the prescribed fees to the Registrar of Companies of the respective state in which the company operates. You must also attach the following documents –
- Registration of partnership application in form No. 1
- Duly completed and signed affidavit
- Original partnership agreement
- Proof of ownership of the commercial space or lease agreement
The submitted application must be signed by all partners. After checking the contents of the partnership agreement, which explains the purpose of the business firm, the registrar will make an entry in the register of companies and issue a certificate of registration.
All businesses also compulsorily register with the Income Tax Department and receive a PAN card for official purposes. After the PAN card is issued, the company can open a current account in any bank and handle all financial transactions through it.
Benefits of registering a partnership firm in India
Partners of a registered firm may file a claim against a third party in disputes. For example – If a third party has claimed the goods but refuses to make payment. However, unregistered companies do not have this right. Third parties can sue business partners regardless of the company’s registration status, this point is Listed under a general power of attorney agreement for the property.
If there is an internal conflict between the partners, the registered firm is free to go to court and let them resolve the dispute. This can include situations where one partner cheats the other out of a profit or decision.
Registered companies have the authority to request a set-off. If a third party claims that the business owes it some money, the business can state whether the third party also owes it any money in return.
Registered companies have higher credibility than unregistered companies.
Types of Partnerships
Although the definition of a partnership deed remains the same, it can be written for three types of partnerships.
- General Partnership – Governed by the Partnership Act 1932 and includes two or more partners who bear equal duties and rights with unlimited liability.
- Limited Partnership – A limited partnership, also governed by the Partnership Act 1932, means that one partner has unlimited liability while the other has limited liability. A limited partner cannot participate in the day-to-day decisions of the firm and has limited access to control.
- Limited Partnership – Governed by the Liability Act 2008, LLP means that each partner has limited liability which is decided according to the extent of their investment in the firm.
What happens in the absence of a partnership agreement?
- A failed business without a proper partnership agreement
- If the business partners do not sign the partnership agreement, it means that –
- Partners are required to share profits and losses equally regardless of the terms.
- Partners do not receive a fixed salary at regular intervals.
- Interest on invested capital is not payable.
- In the case of mutual consent, the partners will receive 6% per year from loans to the company.
- Interest will not be charged on drawings made by any partner.