Partnership deed- fixed payment to a partner, without profit sharing-possible?
akash
(Querist) 11 January 2012
This query is : Resolved
Hello Experts,
We are in the process of setting up a business and have found a shop for rent. The problem is that shop is currently on rent and the person would basically be sub-letting it to us. To avoid any problems, we are thinking if it would be possible to make this person (who has leased the shop) a partner in this project and show the rent payable to him as partner's salary.
Effectively, we would be paying the rent as salary. This person would not be party to any share of profit / losses.
Is this provision allowed in the partnership deed?
Thank you
Devajyoti Barman
(Expert) 11 January 2012
Partnership means sharing a profit. No matter what your hidden agenda be, if you share the profit with him ina document the person would be deemed to bea partner.
If that person himself is a lessee then there is no need to keep him in good book. Rather approach the owner of the shop and get his consent to keep the tenancy running.
Raj Kumar Makkad
(Expert) 11 January 2012
There is no legal hurdle in making such person as partner of your business in the given facts.
R.Ramachandran
(Expert) 11 January 2012
Dear Mr. Barman,
Probably they want to use the premises. But if the existing lessee gives it for rent then he would become liable to be evicted on the charge of sub-letting. To avoid this, they want to show him as a 'partner' but not giving any share in the profits but a fixed salary.
This game will be looked-through and the charge of sub-letting will stick.
It is not an advisable move. Further more, it should be remembered that the partner - whatever may be the form his remuneration - will be hauled up for any liability of the partnership - whether it relates to sales tax or other liabilities! He cannot escape from that liability. Therefore better watch your steps.
ajay sethi
(Expert) 11 January 2012
agree with Mr ramchandran .
if you want the shop request tenant to obatin consent of the landlord . the existing tenant cannot sub let premises without landlord consent .
rather than making tenant a partner find another shop
akash
(Querist) 11 January 2012
Thank you all for your replies. We will take your suggestion and avoid this route.
Rajeev Kumar
(Expert) 12 January 2012
No legal problem of making such person as a partner of your business
V R SHROFF
(Expert) 12 January 2012
YES, YOU CAN DO IT.
STILL HE HAVE EQUAL RIGHT AS REPRESENTATIVE OF YOUR PRT FIRM, AND IT BINDS LL OF YOU.
SO BETTER TAKE AMT, PAY AS FD INT/ RENT
Deepak Nair
(Expert) 12 January 2012
Rightly advised by the experts above.
M V Gupta
(Expert) 12 January 2012
I agree with the views of Shri Ramachandran. It is not at all advisable to follow the course proposed by the querist.
J K Agrawal
(Expert) 13 January 2012
respectfully I will like to be differ somewhat.
We are not concern what is motto of the client. He is asking answer of only a legal question and do not seek our good advice.
It is possible to pay fix remuneration to a partner instead of a share.
It is not possible that the partner will not share losses or shall not be liable to other liabilities which can be imposed upon a partner.
In such circumstances you can make him partner of 1% profit or loss plus a fixed salary. It will virtually save from you all the evils.
R.Ramachandran
(Expert) 13 January 2012
Dear Mr. J.K.A.,
I do not agree with you when you say "We are not concern what is motto (motive?) of the client."
My intervention in this query came when Mr. Barman said "If that person himself is a lessee then there is no need to keep him in good book. Rather approach the owner of the shop and get his consent to keep the tenancy running", I wanted to clarify that the tenant wanted to sub-let the premises, without the knowledge of the owner and also to get along by a legal way!
To that extent, there is necessity to understand the motive of the client. If any one tries to answer the legal query without understnding the real intention/wish of the queriest, probably one would be doing a great disservice. While we are not here to praise or criticise any intention, we are surely to understand the intention behind and to give caution. Whether or not the client seeks, it is for the lawyer to give a sound advice to protect his interests.
M V Gupta
(Expert) 13 January 2012
If we do not take into account the intention of parties while seeking guidance, our advice would not be helpful to the querist. several times, particularly in the case of family matters we are going beyond law and advising the parties certain practical guidance.Without this this platform may lose its importance.
B.Chakrapani Warrier
(Expert) 14 January 2012
The definition of partnership as per section 4 of the Indian Partnership Act,1932 is "Partnership" is the relation between persons who have agreed to share the profits of
a business carried on by all or any of them acting for all.
In the given case, sharing of profit or loss is absent.
Hence ,I have no doubt in saying that,if you enter into an agreement as given in the query, it won't be a valid partnership as per the Indian Partnership Act,1932
sasankajyoti sharma
(Expert) 15 January 2012
Dear Akash,
You please stick to the suggestions and expertise of Mr. Ajay Sethi and Mr. Ramachandran. They have properly guided you.
I wish you luck and prosperity.
DEFENSE ADVOCATE.-firmaction@g
(Expert) 14 January 2012
