Profit Sharing Agreement and Legal Structure for a Tour and Travel Age

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Yes. You must regularise this arrangement immediately in writing. At present, since the business is a sole proprietorship in your friend’s name, legally he owns 100 percent of the business, irrespective of oral understandings. Your position is legally vulnerable unless documented. Below is clear guidance point-wise: Written agreement – absolutely necessary A written agreement is essential to: Prove your capital investment Record the profit-sharing ratio (40 percent you, 60 percent him) Define expense responsibility, withdrawals, losses, and exit rights Protect you if disputes arise or profits are denied later Without a written agreement, you cannot legally enforce your 40 percent share. Nature of your role – silent partner is possible Yes, it is possible for you to be a silent partner / profit-sharing associate, even if: The business remains a sole proprietorship You are not involved in daily operations However, this must be clearly stated in a Profit Sharing / Business Collaboration Agreement. Important legal risk you should understand Since the registration, bank account, GST, licenses are in his name: All income legally belongs to him You have no automatic right over profits Tax liability is entirely his, unless structured properly Courts rely on documents, not friendships. What the agreement must contain (minimum) The agreement should clearly mention: Amount invested by you (with proof) Profit sharing ratio (40:60) Whether losses are shared or not Expense responsibility (as agreed earlier) Mode and frequency of profit payout Right to audit accounts Exit clause and dispute resolution Better long-term option (recommended) If the business is growing, consider: Converting into a Partnership Firm (registered), or Forming an LLP This gives you statutory rights, transparency, and protection. Do not delay Many disputes arise after profits start coming, exactly at this stage. Delay weakens your position. If you want, I can: Draft a legally enforceable profit-sharing agreement, or Advise on conversion into partnership / LLP with minimum tax and risk For proper legal structuring, paid consultation is advised, as document drafting and strategy must be case-specific. Regards, Vaibhav Sangam Mishra Advocate, High Court Lucknow, Uttar Pradesh Sangam & Sagar Law Office LLP Practice Areas: Business & Commercial Law Partnership & LLP Structuring Contract Drafting & Dispute Prevention Civil & High Court Litigation

Advocate Vaibhav Sangam Mishra LawRato