Partnership agreement where one partner wants share in profit but cant contribute in capital

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Sakshi Tuteja

5 Points Joined February 2016

I want to draft a partnership agreement between two persons for starting a manufacturing business. Partner A will provide technical know-how and will be responsible for operations of the business. Partner B will invest the funds required upto 100% and will provide factory/manufacturing plant . Partner A will be entitled for 15% profit from the said business and will also receive salary amounting to 1.5 lakh per annum. Partner B will get 85% of remaining profit from the business. I need advise on below points-

Q1. Whether there can be a capital clause where full 100% profit is invested by one partner and other partner is contributing technical knowledge and his service.

Q2. If I draft such agreement and get it executed then in future if both partners want to register LLP/Pvt Lt company, how will registration happen? Will there be any problem in submission of LLP form online if only one partner is contributing money and other is contribution knowledge?

Q3. How shall I draft Dissolution clause, as partner A wants to reinvest his share in business and at the time of dissolution he wants his accumulated share from the business.

Q4. Also suggest other clauses which can be included in the agreement to protect the interest of both the parties.

Replies (2)

Chirag

Professional

1979 Points Joined December 2017

You have to value the know how and such value in form of goodwill can be considered as capital contributed by another partner ,

You can write down specific profit sharing ratio in deed

For conversion into company and assuming no further capital invested ,you can allot share in same manner
just what is been shown in Partner's capital account

events of dissolution and terms of distibution of proceeds can be added into it

Other clauses ,you may add a detailed terms of conduct of partners ,with the given situation it seems that Partner A is an active partner while B is sleeping (an investors ) ,you can also add some governance matters , Indemnity clause , time period of conversion (just like after how many years of busines it will convert in LLP/PLC or triggering event ), valuation methods , arbitration clause ( not prevailing although) ,further capital infusion ,salary component of Partner A ( Fixed or Variable )inclduing loss conditions ,loan and charges etc...