No need for a lease deed, you may allow the firm to run without taking any rent.
Is it mandatory to write a lease deed if one of the partners owns the land and building on which bus
My father is running a proprietership firm (Hotel Business). He transferred the land and building in my name 6 months back. Now he wants to add me as a partner In the same firm in ratio of 70% me and 30% him. 1) Is it mandatory to lease the land and building to the partnership firm? 2) Or I can permit the partnership firm to run business on my land and building without any rent just sharing the profit percentage.
Asked 4 years ago in Business Law
20 Answers
How can the firm operate if it doesn't have the land ie the hotel etc. Well you may do that but it would be a loss for you. Because if you take rent a tax deduction is possible wrt your father.
Since land and building is owned by you and firm is carrying on business on said land advisable to enter into written agreement for use of land and building by the firm
2) you can enter into lease deed with the firm for lease of land and building for x period
1. You may mention in partnership deed that as investment you are allowing using property for business without transferring any ownership rights to partnership firm.
1. the lease can be done to reduce the net profit, and, consequently the tax liability, however, the same is not mandatory
Both are possible.
I can understand that the property which is involved in the matter was owned by your father as proprietary concern 6 months back and now you own it.
Your father added you as partner in Hotel Business.
Pl prepare partnership deed and get it registered with Registrars of firm.
In partnership deed you may lease out the property to hotel for some license fees or may put the conditions you wish but shouldn't be any illegal clauses.
1. You can execute a registered "Lease Deed" with the Partnership or Proprietorship Firm, for some minimum amount of rent (not profit sharing), show it as received, since this will be very much required for Income Tax purposes of both parties and to avoid any legal disputes in future.
2. Proprietorship Firm will have to be converted and registered as Partnership Firm, wherein both shall hold mutually decided share ratio of businesses & profit etc....
3. Land Owner can permit Partnership or Proprietorship Firm, from his property, PROVIDED it not given for free and an L&L agreement is registered, ELSE it will be treated as concealment under Income Tax laws and also will create probable legal disputes in future.
If the property has been transferred to you by a registered deed then you become the absolute owner of the property.
Therefore it is absolutely your own discretion and decision to give this property in lease to the partnership firm or not.
It is not mandatory on your part to oblige.
2. That would be a wrong precedent and an incorrect decision.
You will be losing your revenue from the land besides the property itself at a later stage if you include more partners at a later stage and they ownership by adverse possession.
Not required. But for tax purposes and other requirements it's better to do that.
You can just share profit till any objections between you both in future
1. No, Adding you as a partner and leaseing the land are two different things.
2. Yes this can be done.
If both of you sign a conditional agreement for profit sharing ratio between both of you as per above rules. it can be down. But cross check for Income tax purpose point of view for Partnership firm better to show as rent paid instead of taking individual profit.
Its not mandatory to enter into lease agreement.
Yes, you can permit partnership firm to run business on your property without rent.
Hello,
- It is not mandatory to have a lease Agreement with the Partnership Firm if you are allowing the business to run on your premise and opting to get a profit percentage.
- It would be advisable to include a clause regarding the arrangement, in the Deed of Partnership, to allow clarity and avoid disputes.
1. No this is not necessary , more so, when the owner of the firm us getting the majority profit.
2. Yes, you can do so .
Dear Sir,
You may not have the lease deed but you may mention the necessary clauses in the partnership deed to avoid confusion/misunderstandings in future.
Much better to include the partnership name as the lease agreement can then be used as address proof in all other tax and statutory registrations..
- Since your father has transferred the land and building in your name , hence legally you become the owner of the same , and further being the owner of the same you are having all right over the property legally.
- Further , after getting 70 percent share in the business , you will have right over the firm respectively.
1. No, as the said land and building is not a part of the Hotel business .
2. Before permitting the firm to run business on your land and building , you should enter into an agreement conditionally , otherwise , in future it may create problem for you.
1. No it is not mandatory but if you make the lease deed then it will be easy to show the expenditure in form of rent to save the tax.
2. You can allow your father to run hotel without any lease deed.
Since you have the title to the land and building by virtue of the transfer made by your father it is imperative that you execute written agreement for use of land and building by the firm so that rights and liabilities are clearly delineated.
NO.
Yes.
