Acontract describes a spoken or written agreement amid two or moreindividuals that is enforceable by law (O`Sullivan & Hilliard,2012). A contract usually has four basic components, which includeoffer, acceptance, consideration, and intention of legal consequences(Stim, 2011). In case these four basic components are missing in acontract, then a contract is perceived not to be legally binding. Anoffer shows what is being provided in an agreement while acceptanceimplies what is being offered in an agreement can be agreed uponwithout conditions. In case new terms become provided, then a counteroffer is created, which can be rejected or accepted. On the otherhand, legal intention implies that parties to an agreement shouldhave an intention to create a legally binding agreement whileconsideration implies that a contract should have a value attachmentin order for it to be binding (Feldman& Nimmer, 1999).In this report, I will write a partnership contract that has allthese basic components.
On18thJune 2015, Frank Thomas, Emily George and George Anderson enteredinto a partnership contract and the following were the terms of thecontract
Name of the Business – Frank Thomas, Emily George and George Anderson agreed that the name of the partnership business would be Frank George Real Estate, and the business was scheduled to commence on 1st July, 2015.
Primary Purpose of the Business – It was agreed by the partners that the primary purpose of the business would be purchasing and leasing out residential real estate.
Making of Decisions – the partners agreed that the decisions will be made based on mutual agreement, which will be decided through voting. According to the agreement amid the partners, a decision will be reached through a majority of votes for all important business decisions, while minor business decisions will be agreed amid the partners without the need of a formal vote. In this case, “important” business decision would comprise all those decisions that involve the use of financial resources and cannot succeed without financial backup. On the other hand, the partners agreed that “minor” business decisions would include all those decisions that do not require the use of financial resources for their success.
Contributions to the Business – It was agreed by the partners that Frank Thomas will contribute $1,500,000 to the business, Emily George will contribute $500,000, and George Anderson will contribute $ 1,000,000. The partners agreed that the deadline for the contributions to the business would be 25th June, 2015.
Ownership Percentage – the partners agreed that the ownership of the business would be based on the contributions of the partners. Based on the contributions made by the partners, Emily George will own 1/6 of the business, George Anderson 1/3 of the business, and Frank Thomas will own ½ of the business.
Sharing of Profits and Losses – the partners agreed that the profits and losses made by the business will be shared amid the partners based on the ownership of the business. Therefore, Emily George will have 1/6 of the profits or loss, George Anderson 1/3 of the profits or loss, and Frank Thomas will have ½ of the business profits or loss. The partners also agreed that the profits or losses of the business will be allocated at the end of every year, which according to the business will be on every year on 30th June. The partners will be allowed to take their entire allocated profits every year.
Authority of Partners – the partners agreed that it was necessary to make the decisions made by the partners to be binding, even when there is some partial disagreement, especially on financial resources in order to avoid indebting the entire partnership. Therefore, the partners agreed that Frank Thomas, who owns half of the business, will have the authority of signing checks from the partnership account. It was also agreed that Frank Thomas will have the authority of overseeing any financial dealing that crops up within the business.
Maintenance of the Accounting of Profits of the Partnership – It was agreed by the partners that the accounting of profits for the business would be done every year and presented on every 30th June. In order to succeed in this, the partners agreed that the person that would be responsible for the maintenance as well as presentation of the accounting of profits for the business will be Emily George.
Auditing of the Finances – the partners agreed that auditing of the partnership finances would be critical in ensuring that all the finances coming into the business and going out of the business is well accounted for the partners agreed that auditing of the partnership finances would be done after a period of six months and will be done regularly at an interval of six months. It was agreed by the partners that the auditing will be done internally as well as externally, where an external and independent auditor will be responsible for auditing. Since Emily George was given the responsibility of maintaining and presenting the accounting of the partnership’s profits, it was agreed by the partners that Emily George will also have the responsibility of overseeing internal auditing of the partnership finances.
Type of Contribution Account – The partners agreed that instead of maintaining individual contribution accounts, where every partner would have his/her own contribution account, they will open one contribution account where they will maintain their contributions, when any need arises.
Accounting Records to be Maintained by the Partnership – It was agreed by the partners that the accounting records to be maintained by the partnership business would be based on the cash basis approach. Also, the partners agreed that George Anderson would have the responsibility of overseeing the maintenance of the partnership’s records that are not for profits.
Management – according to the agreement reached by the partners, all the partners will take part in the management of the business through sharing duties. However, the overall manager for the business will be Frank Thomas. This is to imply that Frank Thomas would be responsible for directing the progress of the partnership business.
Bringing in of New Partners – the partners agreed that with time there will be need of bringing in new partners into the business. It was agreed by the partners that any new partner that wishes to join in the partnership will have to contribute goodwill the goodwill to be contributed by a new partner will depend on the number years that the business would have been in operation. The goodwill to be paid by a new partner would be $1,000,000 times the number of years the business would have been in operation. Besides, in case of a new partner, there will be a need to review business ownership if the new partner will come with contributions. In matters relating to new partners, there would be a review of the partnership agreement at the end of a fiscal year for the partnership business. The partners also agreed that the goodwill contributed by new partners will be used in paying the liabilities of the business.
Withdrawal or Death of a Partner – the partners agreed that in case a partner withdraws from the partnership, he will be entitled to receive his contributions at the end of the financial year of the business as well as half of the profits that should be allocated to him/her during the financial year. The rest of the earnings would be put back into the business. On the other hand, in case a partner dies, the beneficiary of the partner would continue enjoying the benefits that the partner enjoyed, in terms of profit share, but not other benefits. In case a beneficiary is not willing to continue with the business, he/she will be provided with the partner’s contribution and half of the profits that should be allocated to the partner at the end of the financial year of the business the remaining profit will also be ploughed back to the business. Because of the necessary role that beneficiaries will have in case of a partner’s death, the partners agreed that every partner needs to provide the names of the beneficiary and address.
Dispute Resolution – the partners agreed that in case there are disputes in the partnership business, a partner would be required to first seek arbitration or mediation before seeking court resolution. The partners will choose an arbitrator depending on the dispute that is existing before the partners.
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