Partnership Deed | Business Agreement | LLP Contract Guide

In the event that two or more people choose to venture in business together, they can share not only with gains but also share responsibilities, liabilities, and risks. To prevent the future conflicts, as well as to guarantee the correct operation, the need to have a partnership deed emerges. Partnership deed is not merely a document but also a basis of transparent and structured one to one business relationship.

In this article, we will explore the importance of a partnership deed, its essential clauses, different types of agreements like partnership contract, LLP agreement, company partnership agreement, MoU for partnership, and also discuss the dissolution of partnership in detail.

What is a Partnership Deed?

Partnership deed is a legal document which establishes the terms and conditions of a partnership. It will detail the manner in which profits will be divided, the manner in which decisions will be made and the roles assumed by each partner. Although a verbal agreement can also be made, written agreements are more legal and are highly suggested.

In simple words, a partnership deed is also referred to as a partnership agreement or partnership contract agreement.

Importance of a Partnership Agreement

A written agreement has a number of benefits:

1. Transparency in Business Roles - Clarifies roles and responsibilities of each of the partners.

2. Avoids Conflicts - Avoids conflict based on profit sharing and decision making.

3. Legal Recognition- This is taken as evidence during legal disputes.

4. Financial Transactions– You need to open current accounts and have loans approved by banks.

5. Growth and Expansion - Assists in the admission of new partners or change in business terms.

Key Clauses in a Partnership Contract

A standard partnership contract or deed generally includes:

• Name of the firm and its partners

• Nature of business activities

• Capital contribution of each partner

• Profit and loss sharing ratio

• Rights and duties of partners

• Process of admitting or removing partners

• Rules for salary, interest, or commission to partners

• Method for dissolution of partnership

• Dispute resolution mechanism (arbitration, mediation, etc.)

The absence of these clauses may cause misunderstandings, which turn out to be the cause of conflicts and even the termination of the business prematurely.

Types of Partnership Agreements

Depending on the business structure, different forms of partnership deeds are used. Let’s explore the most common ones:

1. General Partnership Agreement

This is the traditional partnership contract agreement where all partners share profits and liabilities as per their decided ratio. It is simple, flexible, and widely used in small businesses.

2. LLP Agreement (Limited Liability Partnership Agreement)

LPP agreement is specialised in a Limited Liability Partnership. In contrast to the traditional partnerships, the liability of partners is only up to the amount of capital invested in the partnership. This is an advantageous structure to those individuals who wish to avoid business risks to their personal assets.

3. Company Partnership Agreement

A company partnership agreement is prepared when two (or more) companies are determined to undertake a business project together. This report describes the scope of work, financial commitment, allocation of resources and sharing of revenues.

4. MoU for Partnership

In other cases, partnerships are signed by signing a Memorandum of Understanding(MoU) before the formal deed is drafted. It is a sort of an agreement in principle that establishes the will to work together. It does not necessarily become legally binding but it creates trust and clarity prior to the full-fledged partnership contract.

5. Limited Liability Partnership Contract

A partnership under the form of a limited liability partnership is subject to the LLP Act, and the liabilities of the partners are limited. It is quite clear and specifies the roles of management, level of contribution and dissolution rules. This shape is common among the professionals such as lawyers, consultants and accountants.

Difference Between Partnership Deed and LLP Agreement

Basis	Partnership Deed	LLP Agreement
Legal Act	Governed by Indian Partnership Act, 1932	Governed by LLP Act, 2008
Liability	Unlimited liability	Limited to investment
Registration	Not mandatory	Mandatory with MCA
Flexibility	Suitable for small firms	Suitable for startups & professional firms

This table makes it clear why many businesses today prefer a limited liability partnership agreement over a traditional partnership deed.

Drafting a Partnership Contract Agreement

While drafting a partnership deed, certain elements must always be included:

1. Basic Details – Firm name, partner details, and address of business.

2. Capital Contributions – Who is investing how much.

3. Profit and Loss Distribution – Ratios must be clearly mentioned.

4. Rights and Duties – Roles of partners in decision-making and daily operations.

5. Admission & Retirement – Process of adding or removing partners.

6. Dissolution Clause – Steps to be followed for dissolution of partnership.

7. Arbitration – Conflict resolution without going to court.

A professional lawyer or chartered accountant usually drafts the document to ensure compliance with laws.

Dissolution of Partnership

Every partnership has a possibility of ending, either voluntarily or due to disputes. The dissolution of partnership refers to the termination of the business relationship. Reasons include:

• Expiry of partnership period (if fixed)

• Completion of the project for which it was formed

• Mutual consent of partners

• Death, insolvency, or incapacity of a partner

• Court order in case of disputes

A partnership deed or limited liability partnership contract should always contain clear rules for settlement of accounts, division of assets, and payment of liabilities during dissolution.

MoU vs Partnership Agreement

Many entrepreneurs get confused between an MoU for partnership and a partnership contract agreement.

• An MoU is usually a preliminary document showing intent. It may or may not be legally binding.

• A partnership deed or partnership agreement is a legally enforceable document, recognized by banks and courts.

Therefore, businesses usually begin with an MoU and later convert it into a formal agreement.

Advantages of Limited Liability Partnership (LLP Agreement)

LLP agreement has a number of advantages:

• Limited Liability- The personal property of partners is secure.

• Legal Personality -LLP has the right to own property, sign contracts and to sue persons in its own name.

• Flexibility - under the LLP agreement, partners are allowed to make decisions regarding rules within the company.

• Perpetual Succession- The company survives when one of the partners leaves or passes away.

This is the reason why nowadays new business enterprises and other professionals would choose a limited liability partnership contract rather than a deed.

Frequently Asked Questions (FAQs) on Partnership Deed

Q1. What is a partnership deed?
A partnership deed is a written legal agreement between two or more people who decide to run a business together. It defines profit-sharing ratios, capital contributions, and the roles and responsibilities of each partner.

Q2. What is the partnership deed format?
The format usually includes the firm’s name, partner details, nature of business, capital contributions, profit and loss ratio, admission/retirement rules, dispute resolution, and dissolution of partnership clause. It is prepared on stamp paper and signed by all partners.

Q3. What are the four types of partnership deeds?
The common types are:

1. General Partnership Agreement

2. LLP Agreement (Limited Liability Partnership Agreement)

3. Company Partnership Agreement

4. MoU for Partnership (preliminary understanding)

Q4. Who can make a partnership deed?
Any two or more individuals—or even companies—who agree to run a business can draft a partnership deed. It is usually prepared with the help of a legal professional or chartered accountant.

Q5. Is notary compulsory for partnership deed?
Notarization is not legally compulsory, but it is advisable. A notarized deed has stronger legal validity and is often required by banks and financial institutions.

Q6. What are the types of partners?
Partners can be Active, Sleeping, Nominal, or Partners in Profits Only. Additionally, a Minor Partner may be admitted to the benefits of partnership with consent of all partners.

Q7. What are the benefits of partnership deed?
It prevents disputes, gives legal recognition, clarifies roles, and is useful for banking and registration purposes. A clear partnership contract agreement also protects partner interests during changes or dissolution.

Q8. Is a partnership deed mandatory?
No, but it is highly recommended. Without it, disputes may arise.

Q9. What is the difference between a partnership agreement and a company partnership agreement?
A partnership agreement is between individuals, while a company partnership agreement is between two or more companies.

Q10. Can an MoU for partnership replace a formal deed?
Not fully. An MoU is more of a mutual understanding, whereas a deed or partnership contract agreement is legally enforceable.

Q11. Can a partnership be dissolved anytime?
Yes, subject to the rules mentioned in the dissolution of partnership clause.

Q12. Which is better – Partnership Deed or LLP Agreement?
For small businesses, a simple deed may work. For startups and professionals, a limited liability partnership agreement offers more legal protection.

Conclusion

A partnership deed is the backbone of any business run by multiple partners. It ensures trust, transparency, and long-term stability. Whether you are preparing a simple partnership contract agreement, a detailed LLP agreement, or even an MoU for partnership, having everything in writing is crucial.

Modern businesses often prefer a limited liability partnership contract because it provides legal recognition, financial protection, and flexibility. Still, even a traditional deed is better than having no agreement at all.

In short, if you are entering into a joint business venture—don’t rely on verbal promises. Protect your future with a well-drafted partnership deed, partnership agreement, or LLP agreement.