Go Ad-Free on CAclubindia with Daily Mobile Updates. Subscribe Now!

Sole-properitorship

namrata (company secretary ) (422 Points)

09 September 2011

Dear Freinds,

One of my freind has started a businessalong with two freinds who equally play a imp role in it . I will explain it with an example:

Mr. A, Mr. B and Mr. C statred a business in which Mr. A has invested money in this businessand he will be getting a profit of 50%, it.ie he is a sole-properitor .and Mr. B & mr. C will be sharing a profit of 25% each as they will be working for this business .There is no as such agreement in a Sole-properitorshi business.. now Mr. B & Mr. C wants to prepare an agreement in which legally they are nominated as partners sharing 25% . But it should not be an partnership agreement

Is it possible . please Help.

Regards

namrata

Reply
Follow
Share

2 Replies

DS Mahajani (1) (242 Points)
Replied 09 September 2011

The example given is not a sole proprietorship but a partnership firm, wherein A had invested his capital and gets 50% share in profit and other two partners i.e. B and C get 25% each in the profit for their efforts in the firm. Why this is not a sole proprietorship becz in sole proprietorship form as you know the profit or loss remains with the sole proprietor only whereas here profit or loss is being shared in a specified ratio. So this is a Partnership Firm but without formal agreement amongst the partners.

If you want to treat it as a sole proprietorship then there cannot obviously be any agreement and B and C can get Salary (equivalent to their total 50% of profit/loss) for working for the sole proprietorship.

Hence, B&C are the Partners only and can be admitted as such in the Partnership Firm can have specified profit / loss ratio with or without agreement.

Hope this clarifies.

Regards