Partnership Agreement is a contract between partners in a partnership that sets out the terms and conditions of the relationship between the partners. It is a contract between two or more individuals who would like to manage and operate a business together in order to make a profit. Since the partnership is the outcome of a valid agreement between or among partners, so it is the highway to drive the partnership named vehicle without any dispute in the days to come. Each Partner shares a portion of the partnership’s profits and losses and each Partner is personally liable for the debt and obligations of the Partnership. The partnership agreement should be in black and white because of its formal existence, which makes the highway clear and distinct. But there is no mandatory clause available in the partnership act regarding the existence of partnership agreement in written form. The purpose of a partnership agreement is to establish a business enterprise through a legally binding contract between two or more individuals or other legal entities.
One benefit of a Partnership is that Partnershipincome is only taxed once. The only disadvantage of having a partnership agreement is that you might have language that is unclear or incomplete. If the written agreement is not available a verbal agreement could be a handy one to operate the business of the firm. This partnership agreement designates the rights and responsibilities of each partner or entity involved. Whenever all the terms and conditions of the operating partnership business are codified and listed in the form of a written document. It is the legal document that dictates the way a business is run and details the relationship between each partner. It becomes the deed of the partnership business.
Your partnership agreement needs to cover a lot of ground. A partnership deed contains the following:
- Name, nature, and address of partnership business in detail where the permanent address of all the partners is included besides the address of the business firm.
- The total capital of the firm, the proportion of such capital who is going to contribute what? as well as the duration of the partnership if the case concerned.
- It should contain the ratio at what the profits and losses would be shared and the rate of interest entitled on contributed capital as well as interest payable rate in case of drawings.
- Amount of salaries, commission, and other allowances if any payable to partners followed by the amount which is available for drawings in anticipation to earned profits of the firm for private expenses.
- Loans and advances by partners and the rate of interest thereon followed by the rights and duties of all the partners.
- The nature of capital either fixed or fluctuating followed by a procedure of maintaining books of account in the case of valuation of goodwill, admission, retirement, death, and dissolution of the partnership business.
- The method of finding out the amount due to the retiring/the representative of a deceased partner.
- To settle the dispute among the partners the arbitration clause, if any.