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Partnership

(Querist) 20 March 2018 This query is : Resolved 
Hi,

We have a factory by name xyz .The land is located in government industrial area. It has 4 partners having equal share of 25% each. But as per the government the first partner should have 50% share and also partnership deed is done as per government which says first partner should be 50%.
But in reality we have invested equal i.e. 25% share for the factory, but in partnership deed it is 50% for the first partner.

How should we make legal documents which says all have invested equal in the factory but due to government rule we have made the first partner as 50%. Which in reality all are 25% owners.

Thank you

Regards,
Prashant

kavksatyanarayana (Expert) 20 March 2018
As per Partnership Act,it is not neccessary to mention 50% for 1st partner. The partners may invest their share according to their wish. But some sections of the Act varies from one to State to State through amendments. so check in your state.
R.Ramachandran (Expert) 21 March 2018
Dear Mr. kvksatyanarayana,

Pl. appreciate the query before providing your answer.
The querist is also aware that the Partnership Act does not prescribe any minimum or maximum % of share to be held by a particular partner.

But what he says is that even though every partner has actually contributed only 25% capital, but to meet with the stringent condition, but as per the requirement of the Govt. since any partner has to have minimum 50% share holding, to comply with that requirement, they have indicated in the Partnership Deed as one partner having 50% share.

Having so done, to meet with the stipulation of the Govt., he wants to know whether they can have another agreement, which will not be a Partnership Agreement, to say that each of the partners have only 25% share in the partnership.

In my view, they can definitely have a separate agreement, clearly indicating that they have shown one person as having 50% share in the Partnership Firm only to meet with the criterian of the Govt. stipulation, and in reality every partner has 25% stake in the partnership firm, and it will be acted upon in all respects to deal with the affairs of the Partnership Firm, despite what % of share has been shown in the Partnership Agreement. This Agreement is perfectly valid. (Normally this type of Agreement is called Side by Agreement).
kavksatyanarayana (Expert) 21 March 2018
@ Ramachandran ji thank you ji.
Guest (Expert) 21 March 2018
You may be creating a very odd situation, as legally you will have to shell out additional profit up to 25% without enhancement in his real share. That will be to the disadvantage to the other three shareholders. Similarly if the firm incurs loss, if the first shareholder refuses to share additional loss on prorata basis equitable to his additional nominal share that may also be to the disadvantage of the other three shareholders. In both the positions a serious dispute among the partners of the firm cannot be avoided.

So, better ask him to contribute additional share of 25% or the amount be shown as loan from other partners by reducing their shareholding, so that they may not be put to loss for the extra money invested on behalf of the 1st partner.

But in any case, a revised partnership deed may have to be prepared.
P. Venu (Expert) 21 March 2018
First of all, please ascertain whether the "50% condition" has the sanction of a valid statutory provision.


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