Written agreement between two or more individuals who join as partners to form and carry on a for-profit business. Among other things, it states the

(1) nature of the business,

(2) capital contributed by each partner, and

(3) their rights and responsibilities.

Indian Partnership Act, 1932

A partnership is the relationship between persons who have agreed to share the profits of a business carried on by all or any of them acting or all. In India it is governed by the Indian Partnership Act, 1932, which extends to the whole of India except the State of Jammu and Kashmir. It came into force on 1st October 1932.

A partnership firm is not a legal entity apart from the partners constituting it. It has limited identity for the purpose of tax law as per section 4 of the Partnership Act of 1932.

Types of Partnerships

There are 4 general types of partnership arrangements:

General Partnerships assume that profits, liability, and management duties are divided equally among partners. If you opt for an unequal distribution, the percentages assigned to each partner must be documented in the partnership agreement.
Limited Partnerships (also known as a partnership with limited liability) are more complex than general partnerships. Limited partnerships allow partners to have limited liability as well as limited input with management decisions. These limits depend on the extent of each partner’s investment percentage. Limited partnerships are seen as attractive to investors of short-term projects.
Joint Ventures act as general partnership, but for only a limited period of time or for a single project. Partners in a joint venture can be recognized as an ongoing partnership if they continue the venture, but they must file as such.
Silent partner is one who still shares in the profits and losses of the business, but who is uninvolved in its management, and/or whose association with the business is not publicly known; these partners usually provide capital.

As you can see it is folly to operate a business under any partnership basis without an agreement in place. Net Lawman provides you expertly drafted partnership agreements.

India introduces new Limited Liability Partnership Law

The Indian Parliament has passed the Limited Liability Partnership (LLP) Bill, 2008. LLP, as a corporate entity is similar in concept to the Limited Liability Company (LLC), available in the United States. The LLP format provides the benefits of limited liability of a corporation but allows its members the flexibility of organizing their internal management on the basis of a mutually arrived agreement, as in a partnership firm.

Pros of a Partnership

The workload can be shared between partners
Each partner may specialize in their own area of the business
More finance can be raised then, say sole-traders, due to more owners investing in the business
Due to the business being generally larger than a sole-trader, it has a better chance at generating other sources of finance e.g. bank loans, etc
There are no legal formalities to complete prior to starting the business
Partners can cover each other during times of absence, e.g. holidays or illnes

Cons of a Partnership

Profits are shared between partners
Decisions may take time to reach due to other partners disagreeing
Partners are equally responsible for liability
Any actions and decisions based on the business are legally binding to ALL partners
A partnership is terminated when a partner dies and therefore the process of forming a new partnership has to be taken

Introduction of new Partners

At some point you may decide to introduce another partner into your business. In such case, you should specify the terms and conditions of doing so which may initially be the agreement of all partners to acknowledge that a new partner is welcome. You may then suggest the amount of capital that the new partner needs to invest into the business and the rights and benefits that they will receive from doing so.

Retirement of a Partner

In the event of a partner retiring, you should agree to a retirement package and how the business will continue to be run. You may decide that the share of the business from the retiring partner will be distributed evenly between the remaining partners. Net Lawman has got an up-dated deed of retirement from partnership business.

Dissolution of Partnership

If your partnership ceases to trade, then you need to determine how the business will be split between all partners. This will be a split of the money after all remaining stock, assets and equipment have been sold. You can download a very good template of partnership dissolution agreement from Net Lawman site.

Unfair competition

Should a partner decide to leave the partnership, you should agree terms that determine what type of employment the partner can go into. This may state that the leaving partner cannot go into employment that is in direct competition with the partnership

The Dismissal or Death of a Partner

Should the unfortunate event of the death of a partner occur, it is important that you agree what will happen with the business.

Disputes

If disputes arise between partners in a partnership you need resolution swiftly to avoid matters turning acrimonious and leading to difficulties in the continued running of the partnership business and reputation.

Some Provisions of Partnership Agreement in a nut-shell

A business partnership agreement includes provisions relating to the following:

Nature and purpose of the partnership
Capital contributions of each partner
Profit and loss allocation
Authority of each partner
How to admit new partners
A course of action in case a partner dies
How to buy out a partner's share
Signature authority on partnership bank accounts. You may allow each partner to sign on behalf of the whole partnership, or you may require all partners to sign all checks
Conflict resolution

Net Lawman’s Partnership Agreement Templates for India

Whether you are making a new partnership or admitting a new partner in an already existing partnership or want to refer a partnership dispute to arbitration, Net Lawman has a largest selection of partnership agreements suitable to your requirement.

Our templates have been drafted by a team of Solicitor and Barristers who are expert in Partnership Law of India. All our partnership agreement forms are up-to-date according to Indian legislation, and are drafted in plain English with explanatory notes.

Legal Advice India

Monday 19 September 2011

Partnership Agreement