Partnership agreement can be defines as “ the document in writing which is signed by all the partners in the business as well as contain all the matter governing mutual rights, duties, and liabilities of the partners in the conduct and management affairs of the partnership”. It may also be referred as “articles of partnership” contain the name, nature of business, capital, duration of the firm etc. Partnership agreement also known as the partnership deed.
A partnership agreement on stamp paper is considerable to be valid for the court against any dispute. The importance of partnership agreement can be judged from the following facts:-
- It forms the basis of formation of the Partnership.
- It defines the mutual rights, duties, and liabilities of the partners.
- It helps in minimizing the areas of disputes among the partners.
- It serves a guidepost for the conduct of firms business.
Contents of Partnership Agreement
The partnership agreement usually contains the following clauses:-
- Name and location of business.
- Nature of the business.
- The contribution of money of capital by every partner.
- Provision of reinvestment in business.
- The duties, power and obligation of all the partners.
- Life of business.
- The method of distribution of profit and sharing of the losses.
- Method of admitting new partner.
- Procedure for withdrawal of a partner.
- The method of valuation of goodwill.
- The method of revaluation of assets and liabilities.
- Procedure to be followed for expulsion of partner.
- Salary payable to the partners for managing the firm.
- The routine of preparing accounts and arrangement for audit.
- Procedure for dissolution of the firm.
- Operation of bank accounts
Types of Partners
There are three types of partner in a firm which are given below:-
- General partners.
- Special partners.
- Other partners.
- General Partners
The liability of those partners in the business which are unlimited is called General partners. There are two types.
- Active partner
- Sleeping Partner.
Active partner: – The partner in the business who is taking practically part in the business affairs of management is called Active partner.
Sleeping Partner: – The partner who has contributed his capital in the business as well as shares every profit and loss but not interested in the business affairs of management of a firm is called as Sleeping partner.
- Special Partner
The partners who has contributes his capital in the business but his liability is fixed to the extent of his capital is called as Special partner. They only exist in the limited partnership.
- Other Partners
The other forms of partners in a business are as given below:-
- Secret partner.
- Nominal partner.
- Minor partner
- Partner in profit.
Secret Partner: – The partner who is unknown to the general public but practically taking part in management of the business is called Secret partner.
Nominal Partner: – The partner, who can neither contribute his capital nor taking interest in the business affairs of company, only lends his name for the goodwill and credit worthiness is called Nominal partner.
Minor Partner: – The partner who has contributed his capital in the business but his liability is fixed for a specific period to the extent of contribution is called as Minor partner.
Partner in Profit: – The partner who is receiving some part of earning profit but not liable for any losses is called partner in profit.