Partnership is a business where two or more person carry on in an agreed manner. There is a partnership agreement that decides the rules and guidelines of partnership in respect of sharing profit and losses, asset sharing, capital sharing, adding new partner and many more. Each partner has share in profit and loss that makes them liable towards property, labor, skill, money and many more. As partnership is among two or more persons that brings diversity in experience to the business; thus, it is quite important to decide all the points in advance under a partnership agreement.
Partnership agreement is a legal document that comprises of rules as per which the partners carry on with their partnership. It includes the following steps :
- Name of Partnership
- Contribution of the Partnership
- How future business decision are made
- Management duties
There are basically three type of partnership that one can form while setting up a business partnership.
- General Partnership: It is a most common form of partnership where the percentage of sharing of profit and loss and other obligations have been defined in agreement in advance.
- Limited Partnership: Here the obligations of partners towards the partnership is limited as depend upon the ratio of their investment to the business. This form of partnership usually followed for short term projects.
- Joint Venture is another form of partnership which is usually followed for specific period of time. This partnership can be held under ongoing partnership if partners continue to venture but that must be file.
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