A standard Partnership Agreement contains the following:
(a) The Introductory Clause: This Clause contains details of the partners to the agreement including name and address of the partners and the partnership firm, the date of execution of the agreement, term of the agreement, principal place of business and the purpose of the agreement.
(b) The Definition or Interpretation Clause: The various key terms that are being used in the agreement are described in this Clause.
(c) The Capital Contribution Clause: This Clause contains capital contributed by each Partner to the partnership firm either in cash or kind. It also contains that a partner cannot withdraw any amount from the capital without the consent from other partners.
(d) The Profits and Loss Clause: This Clause confers that all profits and losses shall be equally divided among partners. Every partner shall have a separate income account where all the profits will be credited and all losses will be charged, and if the partner loses all his credit balance then the losses will be charged to his capital account.
(e) The Partnership Books Clause: The partnership books and other books of account should be duly maintained and it should be kept at principal office of the partnership firm. All partners shall have the access to the partnership books and can inspect it at any reasonable time during business hours. The books shall be kept on a fiscal year basis, and shall be closed and balanced at the end of each fiscal year.
(f) The Fiscal Year Audits Clause: All the books of account and the partnership book should be examined by an independent certified public accountant at the end of each fiscal year.
(g) The Salaries and Withdrawals Clause: Under this Clause no partner shall receive any salary for services rendered to or for the Partnership.
(h) The Interests Clause: No interest shall be paid to the partners either on the initial contributions or on any subsequent contributions of capital.
(i) The Banking Clause: Every partnership firm shall maintain a separate bank account in its own name. All the revenue of the partnership shall be deposited regularly by the partners so that all the partners can keep a check on such accounts.
(j) The Management of Partnership Clause: All partners enjoy an equal right in the management of the Partnership Firm. Any one of the partners cannot borrow or lend money, or accept any commercial paper, or execute any mortgage, security agreement, bond, or lease, or purchase or contract to purchase, or sell or contract to sell any property for or of the partnership other than the type of property bought and sold in the regular course of its business without the consent of the other partner.
(k) The Partners Death, Disability, or Voluntary Withdrawal Clause: Partnership Firm does not lose its existence on any partner’s death, permanent physical or mental disability, or retirement from the partnership, or voluntary withdrawal from the partnership. Rather, it shall continue without interruption and without any break in continuity.
(l) The Termination Clause: The partnership agreement can be terminated:
(i) Voluntarily, where all the partners decide to liquidate the firm and distribute the proceeds incurred from the process;
(ii) Upon the death of a partner, the surviving partners can either purchase the interest of the deceased partner or can terminate and liquidate the partnership firm; and
(iii) For insolvency, when the partnership firm gets bankrupt and all the partners decide to liquidate the firm and pay off the debts incurred due to the business.
A Partnership Agreement is formed when two or more persons agree to carry on a business with a motive to share profits and liabilities mutually.
(m) The Indemnification Clause: As per this Clause it is the duty of each partner to indemnify the other partners from all the expenses and liabilities incurred due to any negligence or misconduct.
(n) The Dispute Resolution: As per this Clause, the parties shall have the right to refer to arbitration, any dispute arising out of the agreement which they otherwise, cannot resolve through negotiation or mediation.
(o) The Governing Law: This includes the Agreement terms to be governed by and enforced as per the relevant State or Territorial law.
This article is designed to help you in understanding the nuances of a Partnership Agreement. A comprehensive, well-crafted Partnership Agreement can help you to mitigate all the contingencies involved. For any assistance contact our team of experts at Owen Hodge Lawyers.
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