1. What is Partnership?
The first paragraph of section 4 of the Partnership Act defines partnership as a relation between persons who have agreed to share the profits of the business carried on by all or any of them acting for all. Partnership is thus not a contract nor an agreement but is merely a relation between persons who have entered into an agreement.
Essentials of a partnership
From the definition of partnership as given above it can safely be laid down that to constitute a partnership between two or more persons the following ingredients must co-exist;
i. the persons concerned must be carrying on some business;
ii. the persons carrying on the business must have entered into an agreement;
iii. the agreement must be to share the profits of the business; and
iv. the business must be carried on by all the persons or by any of them acting for all.
The constitute partnership all these four elements nust exist. If any one or more of them are missing the relation will not be that of partnership between the persons and the persons concerned will not be partners as defined in the said section.
3. Partnership agreement
It is the most important document of the partnership which includes the terms and conditions relating to partnership and the regulations governing its internal management and organization.
4. Important provisions of partnership deed
The usual provisions which should be contained in such documents are as follow
i. Name of firm
Name of the firm under which the business is to be conducted.
ii. Nature of business
Nature of the business to be conducted by the partners must be stated.
Location of the business where it is to be operated.
iv. List of partners
List of partners, their names, addresses of the partner should also be placed in the agreement.
v. Amount of salary
The amount of any salary payable to partners.
vi. Division of work
The division of work among the partners for the management of the firm.
vii. Amount of profit
The fixation of the amount of profit payable to any employee other than salary.
viii. Head office and branches
Allotment of the place for head office and branches.
ix. Dealing bank
The name of the dealing bank.
x. Additional capital
How further capital, if necessary, is to be introduced.
xi. Audit of accounts
Provisions regarding the reparation, audit and signing by the partners of annual accounts.
xii. Duration of partners
Duration of partnership, whether it is in definite period of time or indefinite period of time.
xiii. Date of commencement
Date of the commencement of the business.
xiv. Total capital
The total capital of the firm and the share of each partner in the capital.
xv. Ratio of profit
The ratio of sharing profits and losses of each partner.
xvi. Amount of drawing
The amount that each partner shall be allowed to withdraw in anticipation of profits.
xvii. Interest on capital and drawings
Whether interest to be allowed on capital and charged on drawings and at what rates.
xviii. Rules of admission and withdrawal
Rules regarding to retirement, debt and admission of partner, including minor.
vix. Determination of good will
How the value of goodwill in determined and accounts will be cleared of retired or deceased partner.
xx. Period of accounts
Period after which final accounts are to be prepared.
xxi. Rights and duties of partners
Clauses as to the rights and duties of each partner.
xxii. Loan and interest
Provisions in regard to amount to be brought in by any of the partners by way of loads and interest thereon.
xxiii. Settlement of accounts
Settlement of accounts at the dissolution of firm.
Provision for arbitration in case of dispute among the partners.
xxv. Deficiency in capital
How to deficiency in capital will be covered at the insolvency of any partner.
The date and witness of agreement.
xxvii. Ways of dissolution
The manner under which the firm any be dissolved.