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A Partnership Agreement is an agreement between two or more individuals who would like to manage and operate a business together in order to make a profit. It is a relatively common business structure in India and can be contrasted to other common business structures such as a sole proprietor, an LLP, a company or a trust.
In a partnership, several partners are able to work together (unlike a sole proprietor). Each partner shares a portion of the partnership's profits and losses and each partner is personally liable for the debts and obligations of the partnership.
Compared to a company or a trust, a partnership can have lower set up and administration costs. However, while companies and trusts offer some protections against liability, a partnership does not. A partnership is not a separate entity from the partners. If the partnership incurs a liability, the partners are personally responsible for it. Furthermore, a partner can become liable for debts that another partner has incurred on behalf of the partnership.
In comparison to Partnership, A Limited Liability Partnership i.e. LLP is an alternative corporate business form that gives the benefits of limited liability of a company and the flexibility of a partnership. LLP is a separate legal entity, is liable to the full extent of its assets but the liability of the partners is limited to their agreed contribution in the LLP. The Agreement for LLP is different from that of Partnership Deed.
Nevertheless, a partnership is a cheap and convenient way for several people to go into business together and is a popular business structure for many Indians. And an important step in getting the partnership established is to make a written record of the agreement between the partners, by using this Partnership Deed.
This Partnership Deed describes the partner responsibilities, outlines the ownership interest in the partnership, defines the profit and loss distribution of each partner, prepares the partnership for common business scenarios, and includes other important rules about how the partnership will be managed and conduct business.
The document is a critical foundational document for running a new business and sets the business up for success by ensuring clear communication and defined responsibilities for all of the partners. This Agreement documents both contingency plans for when things go wrong as well as descriptions of the partnership's day-to-day operations. A Partnership Deed protects all of the partners involved in the business and any individuals who plan to do business together should complete a Partnership Deed.
How to use this document
A Partnership Deed can be created either as a first step to outline partner expectations and responsibilities before the partners begin doing business together or after the partnership has already been in business if a Partnership Deed was never created and the partners wish to codify or clarify how the partnership operates. No matter when in the life of a partnership Deed is created, the Deed will cover the following ground:
The Deed also includes the ability to define management roles within the partnership if the partners wish to do so. Once the Partnership Deed is completed, all of the partners should sign and date the Deed. Each partner's signature should be witnessed by an independent adult, meaning somebody over 18 years old, who is not involved with the partnership. This means the partners can not witness each other, and people closely connected to the partners (such as their respective spouses) should not act as witnesses either.
The partners should keep copies of the Deed for their records. If the partners wish to change any of the terms of the Agreement, they should be sure to do so in writing.
The Indian Partnership Act, 1932 is the law governing partnerships in India.
General principles of contract law, as provided by the common law, may also apply.
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