Partnership Agreements: Significance in Businesses
A partnership agreement is a written contract between two or more parties/partners having an interest in a business. Partnership agreements serve as instruments to secure the investments of the partners and establish the partner’s position as well as his / her share in a company. Further, they establish the set of governing principles, operational rules, and the roles of the partner(s) that are drafted and agreed by the parties before going for partnership firm registrations.
Partnership Agreement Clauses:
The main elements of the partnership agreement include the following clauses/details, but not limited to
(i) Level of capital contributions by each of the partners, which determines the percentage of interest in ownership
(ii) Calculation of the profit and loss from the business and division of the same among the partners and the details of drawing the same i.e. annually, monthly, or at a periodic interval as agreed by the partners
(iii) Details on the working partner, if any, and his / her contribution towards the business, and the remunerations associated with the same
(iv) Roles and responsibilities of each partner, including the decision making authority, position in the business, etc.
(v) Details on the record of accounts, annual reports, maintenance of bank accounts, avail loans in the name of the business, for the business to a certain limit, cash withdrawals for the business to a certain limit
(vi) Dispute resolution systems, i.e. arbitration, mediation, or conciliation – to avoid misunderstandings and lengthy litigations
(vii) Decision-making methods and systems, to arrive at important decisions
(viii) Details on the conditions for the dissolution of the partnership
(ix) Withdrawal/leave/death of a partner, etc. for the smoother transfer of the ownership interest to a third party or a legal representative
Additional details to be part of the agreements include the type of business, place of business, frequency of meetings, interests on the capital loaned from partners (i.e. additional capital), and the time limit for re-paying the same.
Advantages of the Partnership Agreement:
1. Makes all the parties binding and requires adherence to the proviso of the agreements
2. Helps in making clear decisions that benefit the business and protects the interests of the partners as well
3. Serves as the evidence for financial contributions including capitals, lending, loan details, etc.
4. Serves as a valid proof for opening bank accounts, getting loans, availing financial assistance from the government(s), tax registrations, etc.
5. Offers to enforce the terms of the contract without any misunderstandings that lead to a longstanding relationship between the parties
6. Helps to avoid the complex and costly litigations in case of a dispute
7. Enables dispute resolution through, arbitration, mediation, and conciliation
8. Serves as legally valid evidence, since the terms and conditions are meticulously drafted and agreed beforehand
9. Enables smoother dissolution of the business, based on the necessity
IPLF and Partnership Agreements:
Regardless of the relationship with the partners, whether family members, friends, relatives, trustable investors, it is always advisable to have the written partnership agreements in place to avoid misunderstandings and costly disputes. Even though oral agreements are valid when proved, the written and signed partnership agreements are more valid and can be used as vital evidence before the court of law in case of disputes.
Further, there are various clauses to be included in partnership agreements based on business obligations, which also requires legal prowess to draft a comprehensive agreement. Our team comprises highly skilled and trained legal professionals to assist in the negotiation and drafting of various types of contracts including partnership agreements, which are not only mutually beneficial to all the parties involved but also protect your business interests.
Author: Govindhaswamy Srinivasan, a Principal Associate – Patents at Khurana & Khurana, Advocates, and IP Attorneys. In case of any queries please contact/write back to us at email@example.com