Framing a Partnership Agreement: Entailing Stronger Provisions
The partnership has gained a lot of prominence in the business in the past decade. In a Partnership, two or more people own and run a business. Getting two or more people in the business gives a lot of advantages to the corporations as a whole. The benefit of diverse knowledge from the diverse field and getting resources and skills which would not have been there if it would have been alone. The partnership provides a space to each partner where the partner is a sole proprietor in his share. Each partner will hold a share of the business’s assets and liabilities and will also be liable for any profit and loss thereof. Undoubtedly, as stated, the partnership has more people working for them, and for this, it is difficult to structure the function and aspects that regulate the functioning of the same. Hence, it becomes very important to have a structured partnership agreement that must not arise any such disputes in the partnership.
[Image Source: Getty Images]
Elements of partnership
To understand the nuances of the partnership agreement, it is important to include some of the very important aspects that define the functioning of the partnership. The agreement must be clear with the aspect of stakes that are held by the respective partners. It is important because the investment being made at the starting of the business determines profit sharing as well. The liabilities and the responsibilities of the business must be clearly stated. It must be ensured that the partners must know that at what point the liabilities will arise so that there should not be any kind of confusion.
As stated earlier, the investment being made by the partners must be drafted with utmost care since this forms the base of the business. The agreement should demarcate the investment being made and the profit-sharing ratio. At what time will the investment be required and what must be the proportion that will be invested must be ascertained. During the loss or at places that require some further expenditure, the agreement must be clear regarding such expenses. Generally, the partnership is based upon the distribution in terms of profit percentage. But in some cases, the partners are paid a definite salary. All these must be clearly defined in the agreement.
The point that who will be the decision-maker is also an important provision in a partnership agreement. There are various such disputes in which the agreement seems silent when it comes to decision-making concerning certain matters. Because there can be certain matters in which it is difficult to get a consensus and which finally creates a dispute. The agreement must be clear with the provisions of who will have the final say over the matter. If this is not possible then whether it will have voting or some other measures, must be mentioned very clearly. In such a case, there are chances that the parties end up in a dispute with each other. Another important part that follows the decision-making is to decide what to do if there is a dispute. Dispute resolution should be defined. Whether the partners want to go for arbitration or whether the final recourse will be taken from the court, must be added in the agreement.
While getting ahead with the partnership, there can be a lot of changes that occur with time and that must have some remedies defined in the agreement. It is not possible to assume any such changes while starting the business but some of the measures are general. For example, if there is a sale of any such stake in the business, how will that be resolved? Or if more partners are coming in the future, then how the distribution of profit will be managed? What will happen to the ownership of the company if there is a death of a partner? What will be the liabilities of the partner in case of bankruptcy? These are some general conditions that are commonly assumed while going into the business. All these questions must have an answer in the agreement.
If the contract is being entered upon, for how long will the contract be among the partners, must be mentioned in the agreement. The duration of the partnership and conditions for the termination of the partnership must be included in the partnership agreement. It is highly advisable that the clients while drafting the partnership must take the help of some experienced professional. The team at IPLF have the experience in drafting the partnership agreement and also have expert people who have drafted such agreements for partnership in varied field.
Author: Saransh Chaturvedi (an advocate) currently pursuing LLM from Rajiv Gandhi School of Intellectual Property Law (IIT Kharagpur). In case of any queries please contact/write back to us at support@ipandlegalfilings.com.
