Partnership Deed

What is a Partnership Deed?

A Partnership Agreement is an agreement between two or more individuals who would like to manage and operate a business together in a form of a partnership 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.

What is the difference between a Partnership Deed and an LLP agreement?

A Limited Liability Partnership (LLP) is a distinct form of business that offers the advantages of limited liability, similar to a corporation, while also providing the flexibility of a partnership. The Limited Liability Partnership (LLP) is treated as a distinct legal entity from its partners. In the event of any disputes and liabilities or penalties that may arise in the future – for example, if a third party claims damages due to a business transaction failure – the damages will be limited to the total capital of the LLP.

The partners' liability is restricted to their agreed contribution to the LLP. It's important to note that the Limited Liability Partnership (LLP) Agreement differs from the partnership deed used for traditional partnerships.

Is it mandatory to have a Partnership Deed?

Yes, in India, a written Partnership Deed is mandatory for registering a partnership. The partnership firm is registered under the Registrar of Firms, which is located in each state in India.

Who can enter into a Partnership Deed?

Partnership Deed can be entered into by any two individuals who are above the age of 18, possess a sound state of mind, and are not prohibited by law from forming a contract.

What can be the duration of a Partnership Deed?

There is no specified period for a Partnership Deed. The period will be as mentioned under the Partnership Deed such as for a fixed period, a period till the completion of a certain project, or for an indefinite period.

What has to be done once a Partnership Deed is ready?

Once the Partnership Deed is completed, it needs to be printed on a non-judicial stamp paper. The stamp duty varies from state to state. The information can be found on the websites of the revenue departments of the concerned states.

All the partners should sign and date the Partnership 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 Partnership 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.

Is it necessary to register a Partnership Deed?

No, it is not mandatory to register the Partnership Deed; however, legal protection for partnerships in disputes between partners can only be availed once the partnership is registered.

What must a Partnership Deed contain?

A Partnership Deed typically includes the following key clauses:

• Partnership Information: name and address of the partnership firm, and details of the partners involved.
• Nature of business: A clear and detailed description of the business activities the partnership will be undertaking.
• Term of partnership: The duration of the partnership can be for a fixed period or indefinite period.
• Capital contribution: Specifies the amount of capital to be contributed by each partner in the form of money, property or expertise.
• Profit sharing ratio: Defines the percentage of profit or loss each partner will share.
• Dissolution of partnership: Defines the circumstances under which the partnership will be dissolved or wind up and the process of winding up.

Which laws are applicable to a Partnership Deed?

The Indian Partnership Act, 1932 is the law governing partnerships in India. General principles of the Indian Contract Act, 1872, as provided by common law, may also apply.

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