Many want to set up your own businesses with your peers, close friends and family members. So, you start a small enterprise. Knowing each other for long, you are bound by the greatest element of “trust”. Should you set up your partnership business in a proper and legal form? Take a minute to read this article and appreciate the nature of the partnership law while you wonder.
The Law and Formation
The law of partnership is governed under the Partnership Act 1961.
A partnership is formed if there are two or more individuals but with a maximum of 20 individuals, carrying on business in common with a view of profit. The purpose of the partnership must be legal.
The partnership business must be registered with the Registrar of Business except law firms.
The partners must be 18 years old and above and of sound mind.
Liability of Partners
The law treats the partners to be jointly and severally liable for everything for which the firm becomes liable, while you are a partner. Partners may sue and be sued in the name of the firm of which they were partners at the time when the cause of action accrued. This means if any of your partners commit wrongs to any third party, you will also be held liable for the wrongs even though you are innocent.
A new partner is not liable for anything for which the firm becomes liable before your admission as a partner unless you agree otherwise.
A retiring partner can discharge his existing obligations or liability by an agreement to that effect among the partners. A saying goes well, silence does not amount to acceptance.
Partnership Contract – Must Have or Not?
You may have or may not have a contract in writing to form the partnership. A lot of people trust their partners to the fullest. However, it is highly recommended that every partner must sign a valid partnership contract in writing. Such contract will help parties to resolve conflicts and protect your own interest whenever dispute arises.
You should take care of the points as below:
– Name of the Business (with valid registration number)
– Names and Identity Cards of the intended partners
– Signatories of the bank accounts and cheques
– Contribution on equal basis
– Distribution of profits on equal basis
– Rights and duties of partners
– Accounting and financial records of the business
– Liability and losses of the business
– Monthly salary or drawings
– Manner to introduce new partners
– Manner to change nature of business
– Use of partnership assets and property for the partnership
– Departure of a partner and handover
– Dissolution of partnership
– Dispute Resolution
How to Dissolve a Partnership?
To dissolve a partnership, a notice of dissolution must be given to all customers of the partnership. In the event the notice is not given, the customers can treat all the existing members as continuing to be the partners.
A partnership can be dissolved by any method such as agreement, operation of law, death, insanity, bankruptcy, charging on shares, illegality, committed criminal offence, court order and any reason mutually agreed by the partners.
Upon dissolution of partnership, every partner must first use the partnership property to settle all debt and liabilities of the firm. Any surplus assets, if any, will be distributed among partners thereafter.
The contents of this article do not constitute legal or other professional advice or an opinion of any kind. It is provided for general information purposes only. Please contact us for further enquiry.