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Businesses and Partnership Agreements

5744880287508206746.jpgIf you intend to blogte a business it is important to identify the most appropriate and effective legal relationship for you and any business colleagues; there are a number of different ways to structure this relationship, and different laws govern differently.


Since you cannot put words in your partner’s Mouth after let say if he backs off from Partnership after putting the business against his name and fleecing big chunk of your profit? Court demands solid fact and since you and your partner entered an “Oral contract”, unfortunately it won’t help you in that matter (though since entering an agreement there can be changes made orally). Instead of landing into a vague business, your first priority should be to acquire a legal document which validates your association with your partner and the business.


Under the partnership option, two or more parties enter into a contract to carry on business together with a common purpose. Because the relationship between the individuals is at law a contractual one, the relationship gives rise to rights and duties that are legally binding between the partners.


How does a partnership work?

The partners share responsibility for running the business, share in any profits or losses as stated in the partnership agreement and are liable for any debt within the partnership.  The partnership itself does not pay income tax, but instead distributes the partnership income proportionately to the partners who then pay tax on their own respective shares.


Partnership involves a contract between the partners to engage in a business in order to make a profit. Assets and responsibilities are shared by the partnership. Unlike a company, a partnership is not a separate legal entity, even though the number of partners may be large. A partnership is, however, required to file tax returns.


In general, each partner contributes property, skill or labor, although a partner may contribute nothing and still have the rights of a partner. A partner that contributes property but no labor is usually referred to as a "sleeping partner".

Where a partnership agreement does not apply

If you owe someone money or you are lending or you are in agreement let’s just in case of renting a property or anything exchangeable or in the case of annuity (allowance, pension, gratuity)
You enter in the act of partnership because in all these cases you are not entering into any act of partnership and are fulfilling the due payment or an act of exchange according to the situation as per agreement.


What does Law say about it?

The PARTNERSHIP ACT 1908 sets out much of the law about partnerships, although it may be overridden on particular matters by particular agreements

Does the partnership have to register with any government office?

Unlike a company, an ordinary partnership does not have to be registered. However, "special partnerships" must be registered with the High Court; these partnerships allow a person to be a partner on the terms that his or her liability to the firm’s creditors will be limited, like that of a shareholder in a limited-liability company

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The partnership agreement

It is advisable to enter into a written partnership agreement. Partnerships are usually regulated by written agreements, sometimes called "articles".
Many of the provisions of the PARTNERSHIP ACT 1908 apply only if there is no provision for the matter in question in the partnership agreement; therefore the partnership agreement may override these rules in the Act.

What should be included in the partnership agreement?

Written partnership agreements commonly include the following:

  • the name of the firm
  • a description of the business to be conducted and the place where it is to be carried on
  • whether the business is for a single venture (for a specified term) or whether it is ongoing
  • who is contributing to the capital and in what amount
  • how the profits are to be divided among the partners
  • how disputes between the partners are to be resolved, such as by arbitration
  • who the partnership’s bank and accountant are to be
  • who will be entitled to sign cheque on behalf of the partnership
  • procedures for withdrawing from the partnership or admitting new partners