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A Guide to the Partnership Deed
1. A GUIDE TO THE
PARTNERSHIP
DEED
SV.CO Financial Documents Repository
2. The Guide to the Partnership Deed
Introduction
Congratulations on making the effort to read and understand
about the partnership deed, your first step into a long and
enjoyable startup adventure.
The reason why people come together in a startup is to create a
future that cannot be created individually but only as a team.
Every team, which joins Startup Village, has to setup a real
world company. The easiest company to form is a partnership
and the document, which governs the rules of the partnership,
is called the partnership deed.
3. A startup cannot however function as a democracy. It has to
ride on one person’s vision of the future and the team decides
to come together to make that vision a reality.
At Startup Village, we envisage each partner to have a specific
role (Product, Engineering, Sales, Governance and Design).
While at the beginning, it is difficult to clearly bring about which
partner will be doing more work, it will get very clear going
forward as the interests of each person is generally different.
Please note that doing more work is getting work completed
and not how many hours of work done.
Working together in a team is also not easy and there are many
times when simple ego comes in face of decision-making. This
is a very important skill all through your life and you will learn
this in a startup. Sometimes, teams decide that their individual
skills and chemistry are not matching. The partnership deed has
4. clauses such as retirement where a partner can choose to leave
the partnership and the rules of how to deal with that situation.
This document serves as a guide to the partnership deed, which
you have already seen. We hope that the guide will be useful
to understand, in lay mans terms, the contents of the deed.
Definitions in the Deed
There are a few definitions in the deed are they are fairly easy
to understand
1) The Firm – this is the partnership firm you are creating
together as a team. The name you assign to the firm is
how it will be called after you’ve formed the partnership.
2) The Business – This is the vision and the business of what
you want to do. It can be as broad as information
technology, or as specific as 1 particular activity that all
the partners agree to do.
5. a. Our recommendation is that you keep the business
definition reasonably broad – such as mobile
applications, ecommerce, mobile commerce, internet
solutions, interactive web software etc. Since this is
the first time you are starting a real world company,
you will go through changes in what you want to do,
whether small or large.
b. Keeping the business description open ended allows
the flexibility. There is no harm in doing something
different than what was intended of course.
3) Sharing ratio – This is the ratio with which you will share
profits and losses.
a. We recommend that you keep an equal ratio since
this is your first go at starting and running a
company, and all partners are treated equal with
respect to sharing profits and losses.
6. b. You can always change the ratio later depending on
the amount of work, capital or any other matter you
feel relevant that is put in by each partner.
4) Partnership at will – this means that there is no fixed term
agreed for the duration of the business. A partnership of
this sort can begin and dissolve relatively informally and is
thus very convenient.
Rights of Partners
This partnership deed is written in a way that all partners have
equal rights in the partnership, so that there is no issue of bias
or any one partner having more “power” than the other.
We recommend that rights continue to be equally distributed till
you have had a chance to spend a fair bit of time working
7. together and understanding each others’ strengths in
contributing toward the growth of the business.
The partnership deed also indicates that each partner will bring
in an equal amount of capital at the beginning so that everyone
is treated equally from a financial sense as well.
There is no specific limit on the amount of capital to be brought
in but we do recommend that some funds are brought in to
help run the partnership and meet all expenses of the firm like
travel expenses, internet expenses, fuel, mobile bills, equipment,
credit card expenses etc.
Again, we recommend that each partner bring an equal amount
of capital to avoid hassles in related to financial contribution at
a later stage.
Duties of Partners
8. We believe each partner has to perform a core set of duties in
addition to any common duties that everyone may agree on.
From our experience, the following roles are key in every startup
Product and business concept including visualizing a new
product/service that is currently not available and
documenting it in detail for others to understand the
vision.
Design of the product/service based on the vision
Engineering the product or service, identifying the best
platforms to do so
Sales and marketing of the product or service, and
identifying channels to make an impact including publicity
Finance, Legal and Governance including managing human
capital for operations and management of the business
9. While it may be early for you to decide which area may
specifically be interesting to each of you, we believe you will
eventually figure it out and gravitate toward a specific area
based on your personal passion.
It is important to identify this because it allows each partner to
work on his or her core interest and improve the overall scope
of the business and it’s prospects for success.
You will also realize slowly that a team cannot work on two
vision, two engineering models etc and everyone has to work
together as a single unit for a single vision to succeed.
Records and Books, and Banking
10. In starting a company, you will understand the world of
maintaining records of your financials transactions, and
reviewing them later!
This is also called book keeping as in the pre-internet and pre-
computer era, this information was stored as records/books.
Today, we use software for financial accounting that every
partner can refer at any point of time to see the financial health
of the startup.
You will also have to meet your banking, taxation and other
related requirements.
At Startup Village, we want to help you understand these areas
well since it is core to your success. We aim to provide you with
recommendations of firms that can help with maintaining your
financial and tax records, including the financial statements such
as a Profit and Loss Account and Balance Sheet.
11. We will also provide you with guides to understanding each of
these as well.
We recommend that one (or two) partners be assigned to
operate the banking records and related financial transactions,
though all partners doing that is also quite possible. Ideally, the
partner(s) doing the banking and being the point person for the
financials should be the one who is responsible for Governance
since this area is an integral part of Governance.
Other Clauses
Section 13 of the Partnership Deed talks about dissolving the
partnership when there is actual customer interest, and forming
a private limited company.
Once your business model has customer validation, it is proof
that you are doing something great! Others also believe in what
you do and are willing to buy your product and possibly pay for
12. it. This is also a great time to start thinking about bringing in
new investors and let them also be a part of the risk( and the
rewards).
Forming a private limited company allows you to expand the
scope of your operations, while also allowing for greater
exposure to getting outside investment through issuing shares
in your startup
The main reasoning behind this is that you will need a tighter
legal structure to grow your firm and also safeguard against
easy closure or disruption to your business.
There are obviously other types of companies that you can
incorporate, but this clause is intended to highlight the need to
incorporate a new legal firm once you have customer validation.
Sometimes business conditions and the fact that this is your
first real attempt at forming a company and working together
13. may result in a situation where one or more or all partners may
want to leave the partnership. Since yours is a partnership at
will, to do so it is fairly straightforward. A written notice signed
by the persons wanting to leave the partnership and whether
the others will continue the partnership can be signed.
Though this is not the intention when forming a partnership,
there are many changes that can happen that can result in this
situation.
This is not a cause to worry; rather it is as great learning
experience on working together in a team and in a dynamic
market environment, the skills that individuals have and the
skills that the company you formed will keep requiring changes
as well.
We hope that this guide helps you move forward to understand
the partnership creation and successful creation. Congrats once
14. again on your effort to create a startup and start a new
adventure in life.
Best of luck!