Partnership Agreement

A Partnership is defined by the Indian Partnership Act, 1932, as ‘the relation between persons who have agreed to share profits of the business carried on by all or any of them acting for all’. Agreement is the essential part of partnership business. It secure the right of both party.  A partnership agreement should be prepared when you start a partnership.

Features of Partnership Agreement:

1.Roles and Responsibilities:To set up the roles and responsibilities of each partner and to describe how decisions are made. This decides the question regarding managing partner, responsibilities of individually named partners, any change in roles and responsibility.

2.Taxation:To avoid tax issues, by having the tax status of the partnership, and to show that the partnership is distributing profits based on acceptable tax and accounting practices.

3.Liability:To avoid legal and liabilities, stating out the liability of individual partners and the liability of all partners if there is a liability issue with one partner.

4.Buy- out: The partnership agreement deals with any future changes in the partnership due to life challenges of existing partners - partners who leave, become ill or incompetent, get divorced, or die. These are usually dealt with in buy- out agreement with each partner.

5. New Partner:The partnership agreement deals with the circumstances under which new partners can enter the partnership.

6.Conflict of Interest:To deal with partner issues, like a conflict of interest and non-compete agreements.  

7.To override state laws: Some states have fixed language in partnership agreements. If you don't have a formal written agreement, you may find yourself having to abide by the default state laws. 

8.Dispute:To make disputes easier. It's a good idea to include language in your partnership agreement that describes how disputes will be handled. It also deals with possibility of arbitration, responsibilities of parties and who will bear the costs relating to such disputes.

9.Authority: Partner authority, also known as binding power, should also be defined within the agreement. Binding the business to a debt or other contractual agreement can expose the company to an unmanageable level of risk.