Partnership Deed

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 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 setup 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. The LLP is a separate legal entity, it is liable to the full extent of its assets, but the liability of the partners is limited to their agreed contribution to 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 essential 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 the partners. This Agreement documents both contingency plans for when things go wrong, and descriptions of the partnership's day-to-day operations. A Partnership Deed protects all 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:

• Partnership name: the legal name under which the partnership will do business
• Purpose of the partnership: a brief description of the business that the partnership will conduct
• Partner information: the legal names and addresses of all the partners currently involved in the partnership
• Capital contributions: a description of the cash, property, services, and other resources initially contributed to the partnership by each of the partners
• Ownership interest: a description of the percentage of the partnership owned by each of the partners
• Profit/Loss distribution: a description of how the profits and losses of the partnership will be distributed between the partners, often based on capital contributions and/or ownership interest, and how often distribution will take place
• Management and voting requirements: a description of how the partnership will be managed, how voting weight will be determined, and whether unanimous or majority votes will be required to make important decisions about the finances and operations of the partnership
• Partner addition and withdrawal: the guidelines for how the partnership will handle the addition of partners, the voluntary withdrawal of partners, and the involuntary withdrawal of partners
• Partnership dissolution: an outline of the circumstances under which the partnership can be dissolved and a description of how the remaining assets of the partnership will be divided between the partnership if the partnership is dissolved

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 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 cannot 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.

Applicable Law

The Indian Partnership Act, 1932 is the law governing partnerships in India.

General principles of contract law, as provided by common law, may also apply.

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