Tuesday, March 17, 2009

Partnership deeds: 11 lethal tips you CAN NOT MISS

partnership deeds agreement lease purchase clause

Sometimes, entrepreneurs join together to put up or acquire property as a business venture. The rent accrued out of it or profits from selling projects are shared by the partners. A partnership works well when an individual does not have all it takes to manage a property business. A partner will fill in the void and help in better management.

However, it is important to ensure a proper and comprehensive partnership deed is made so that the property business runs smoothly. Partners getting together either to market real estate or earn from renting out their projects should incorporate relevant clauses in their deed.

1. Basic elements: The name and place of the project should be mutually decided between the partners of the firm. The nature of projects and the duration of venture should also be mentioned here.

2. Funding: The money contributed towards the capital of the project is always equated to the ratio of money brought in by each individual. However, if money is pumped in as and when required by the partners they are entitled to carry an interest on their capital or principle amount.

3. Profits and losses: The profits and losses of the project are always arrived at after debiting all expenses, remuneration for the partners and the interest on capital paid by the partners. It is shared or borne by the partners in the manner in which they have agreed.

4. Management: It is always advisable to have a managing partner to the project to look after the dayto-day activities. The other partners can assist the managing partner and also they will have equal power to enter into a contract, employ and terminate staff, acquire and dispose properties and represent the project.

5. Bank accounts: The partners can open accounts in any bank on behalf of the project. The partners should operate the account jointly or severally with power to draw, endorse, negotiate bills and discount cheques.

6. Borrowing: The active partner should consult the other partners before borrowing on behalf of the firm. Any borrowing made otherwise will not be liable on the project and will constitute liability on the partner who makes the borrowing. A proper book of accounts should be maintained. It should be maintained at the place of project and should be open for inspection to all the partners.

7. Mutual rights and obligations: Usually, there should be no bar for partners who want to carry on any other similar businesses either individually or by entering into other partnerships. However, the partners can include a clause that could restrict a partner in doing this.

8. Retirement/death: The death of any individual will not affect the project. However, the legal heir will take the place of the partner. In case of retirement, his accounts should be settled within a stipulated period of time of retirement.

9. Dissolution: On dissolution of the project, the outgoings of the firm should be discharged first. The capital contributed by the partners should be refunded next. Then, the partners, in proportion to their capital ratio, should share the residue.

10. Arbitration: It is better to always have an arbitration clause in case of any dispute in matters of partnership or the project. It should be referred to and settled under the provisions of the Arbitration Act. The award of the arbitrator is final and binding.

11. Registration: It is always better to add a clause which states that the Indian Partnership Act of 1932 is applicable wherever necessary. The partnership deed should be adequately stamped and all partners concerned, in the presence of two witnesses, should sign the deed.

The deed should be registered under the Indian Partnership Act of 1932 on Form No 5 and submitted to the Registrar of Firms.

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