Business Partnership Agreement: Steps Involved and Meaning

Let us now take a closer look into the meaning of a partnership deed, the format of a partnership deed, its significance, and the various clauses attached to it.

When two or more two people come together and create a new business entity, they enter into an agreement known as a partnership, and when this agreement is put down in the form of a written contract, that agreement is said to be a Business Partnership Agreement.

Meaning of a Partnership Agreement

A written legal agreement that stresses the rights and control of a partnership firm’s members, making the division of profits and losses, as well as other major decisions and their ramifications, crystal clear to each partner.

Important Details to Be Included in the Business Partnership Agreement

The following are the main characteristics of the partnership deed:

• Name and Address of the Partnership and its Co-Owners:- The partnership deed must contain the name by which the business will operate in the future.
• Name of the Owners and their Addresses- The deed must also contain the names and current addresses of all the partners.
• Nature of the Business:- The partnership deed must also clearly mention the type of business proposed to be undertaken.
• Address of the Firm:- The partnership deed must mention the location of all its offices and its head office as well.
• Commencing Date and Place:-  It should also clearly indicate the time and place of commencement of the business.
• Duration of the Business:- The deed also contains the time duration of the partnership, whether it be indefinite, for a fixed period, or a project.
• Capital provided by owners:-The deed must contain the amount of capital each owner has contributed.
• Profit-sharing ratio:- It should also mention the ratio of a division of the profits earned concerning each partner.
• Audit details:- The procedure of audit that will be conducted is to be mentioned in the deed.
• Admission and retirement or death of the partners:- Rules referring to the addition, termination or resignation or death of any partner in the firm must be written down in the deed.
• Rights and responsibilities of the partners:- The deed must also include all the rights enjoyed by the partners and the various duties to be undertaken.
• Settlement of accounts:- the deed shall also enumerate the way of settlement of accounts in case the firm undergoes dissolution.

Why Should a Business Partnership Agreement Be Created?

Being written in nature, a partnership deed is more reliable than any oral agreement.  The significance of a partnership deed can be summarized in the following points:-

• Being legal, this document provides well-defined guidelines and rules for carrying out the agreement of partnership.
• Due to its precision in stating all the necessary information, a deed minimises confusion.
• In cases of the settlement of any dispute, the deed makes the procedure of events simple.
• The precise yet clear nature of the document makes the roles of each of the members of the firm clear and unambiguous.

Advantages of Registering a Partnership

There are many benefits associated with getting a Business Partnership agreement firm registered:-

• Right to File a Case:- A registered firm automatically receives the right to file a lawsuit regarding any dispute.
• The Protection of Interests:- In case of any disputes among the partners, a registered firm and its owners can rightfully claim their settlement.
• Protection from Creditors, Investors:- A registered property is safe from creditors in case of debts if the company duly maintains its records.
• Protection of Business and Production:- All registered firms enjoy the benefits provided by the government as they are registered under the government.
• Bank Loans:- Registered firms receive credits and loans from banks quickly due to their legalized nature.

Documents Required for Registering the Agreement

Following is the list of documents required for registration for partnership firm with the Sub Registrar- 

• Identity Proofs of the partners
• E-stamp paper of the prescribed amount
• Registration fee
• Aadhar numbers of all the partners
• Two Passport-sized photos of each business partner

How to Write a Business Partnership Agreement?

A business partnership agreement is a legally binding contract that outlines the rights and responsibilities of each partner in a business. It is important to have a well-written partnership agreement in place to avoid any disputes or misunderstandings in the future.

Here are some tips on how to write a business partnership agreement:

1. Start by identifying the key elements of your partnership. This includes the name of the business, the purpose of the business, the roles and responsibilities of each partner, the ownership structure of the business, and the profit-sharing arrangement.
2. Once you have identified the key elements of your partnership, you can start drafting the agreement. It is important to use clear and concise language in your agreement. You should also avoid using any legal jargon your partners may not understand.
3. Once you have drafted the agreement, you should have it reviewed by an attorney. This will help ensure that the agreement is legally binding and protects all partners’ interests.

The Stages of a Business Partnership Agreement

A business partnership agreement should typically include the following stages:

1. Introduction: This section should identify the parties involved in the partnership and the purpose of the agreement.
2. Roles and responsibilities: This section should outline the roles and responsibilities of each partner in the business.
3. Ownership structure: This section should outline the business’s ownership structure, including the percentage of ownership held by each partner.
4. Profit-sharing arrangement: This section should outline how profits and losses will be shared among the partners.
5. Dispute resolution: This section should outline how disputes between the partners will be resolved.
6. Exit strategy: This section should outline how a partner can exit the partnership and how their ownership stake will be transferred.

Business Partnership Agreement Mistakes to Avoid

There are a number of mistakes that people commonly make when writing business partnership agreements. Here are a few of the most common mistakes to avoid:

• Not having a written agreement: It is important to have a written partnership agreement in place, even if you are friends or family with your partners. A written agreement will help avoid any future disputes or misunderstandings.
• Not being specific: When drafting your partnership agreement, it is important to be as specific as possible. This will help to avoid any ambiguity or confusion in the future.
• Not including all the necessary provisions: A business partnership agreement should include all the necessary provisions to govern the relationship between the partners. This includes ownership, profit-sharing, dispute resolution, and exit strategy provisions.
• Not having the agreement reviewed by an attorney: It is important to have your partnership agreement reviewed before you sign it. This will help ensure that the agreement is legally binding and protects all partners’ interests.

Can I Change or Modify a Partnership Agreement?

Yes, you can change or modify a partnership agreement. However, it is important to get the consent of all partners before making any changes. You should also have the amended agreement reviewed by an attorney to ensure it is still legally binding. Suppose you are considering changing or modifying your partnership agreement. In that case, it is important to talk with our expert to discuss your specific situation.

FAQs: Business Partnership Agreement

What's the difference between a partnership and forming a corporation?

A partnership is a business structure in which two or more people share ownership and responsibility for a business. A corporation is a separate legal entity from its owners, who are known as shareholders.
Key differences between partnerships and corporations:
● Ownership: In a partnership, all partners share ownership of the business. In a corporation, shareholders own shares of the corporation, which represent a percentage of ownership.
● Liability: In a general partnership, all partners are personally liable for the debts and liabilities of the business. This means that creditors can sue the partners personally to collect debts. In a corporation, shareholders have limited liability, which means that they are not personally liable for the debts and liabilities of the corporation.
● Management: In a partnership, all partners typically have a say in the management of the business. In a corporation, the management of the corporation is typically delegated to a board of directors, whom the shareholders elect.
● Taxes: Partnerships are pass-through entities, which means that the business's profits and losses are passed through to the partners and reported on their personal income tax returns. Corporations are taxed as separate legal entities, which means that the corporation pays taxes on its profits before any distributions are made to shareholders.

How do partnerships pay taxes?

Partnerships are pass-through entities, which means that the business's profits and losses are passed through to the partners and reported on their personal income tax returns. Partners are taxed on their share of the partnership's profits and losses, regardless of whether the profits are distributed or not.

How do partnerships terminate?

A partnership can terminate for a variety of reasons, including:
● The death or withdrawal of a partner
● The bankruptcy of a partner
● The mutual agreement of the partners
● A court order
When a partnership terminates, the partners must liquidate the assets of the business and distribute the proceeds to the partners in accordance with the partnership agreement.

What are the disadvantages of forming a partnership?

Some of the disadvantages of forming a partnership include:
● Personal liability: In a general partnership, all partners are personally liable for the debts and liabilities of the business. This means that creditors can sue the partners personally to collect debts.
● Management disputes: It can be difficult to manage a partnership with multiple partners, especially if there is a disagreement about how to run the business.
● Lack of continuity: If a partner dies, withdraws, or becomes bankrupt, the partnership may terminate.

Get Legal Help with Your Partnership Needs

If you are considering forming a partnership, it is important to consult with an attorney to discuss your situation and draft a partnership agreement that protects your interests. We can also help you to understand the tax implications of forming a partnership and to comply with all applicable laws.

Other Related Articles

• Preparation of Final Accounts of Partnership Firm
• Nature of Partnership Firm
• Provisions of the Indian Partnership Act 1932 in the Absence of Partnership Deed