Partnerships stand out as a straightforward business structure for both formation and ongoing management. Their minimal compliance requirements and simple dissolution rules make them a popular choice for small-scale businesses. A partnership essentially forms when two or more individuals come together with the aim of generating profit from a shared business activity. The operations and terms of a partnership firm are governed by the Partnership Deed, which is established right at the time of formation. However, during the life of the partnership, various situations may arise that necessitate changes to the agreed-upon terms. These changes or modifications can be implemented by amending the Partnership Deed through an addendum to the original document.

Let’s first explore some common scenarios that frequently lead to changes in the Partnership Deed:

• Change in Business Activities: This can involve adding, altering, or removing the business activities undertaken by the partnership firm.
• Change in Name or Business Place: The partners can mutually decide to change the partnership’s name and business location as needed. These changes will require not only an amendment to the deed but also updates to the PAN card and other relevant documents or registrations held in the firm’s name.
• Change of Capital Contribution: Capital is the lifeblood of a business, and adjustments may be needed frequently. While working capital can be added more readily, increases or decreases in fixed capital also occur from time to time. The change can involve:
  • Adding capital to the partnership.
  • Reducing the partnership’s capital.
  • Changing the ratio of capital contributed by the partners.
• Change in Management Structure: Many firms decide on specific roles and responsibilities for partners to improve work management. When designations or related changes are required, the deed can be amended accordingly.
• Change of Terms or Conditions: This covers changes to the general terms of the partnership or modifications to any specific clause within the deed. It also includes changes related to:
  • Addition of a Partner.
  • Appointment of a Partner.
  • Expulsion of a Partner.
  • Retirement of a Partner.
  • Resignation of a Partner.
• Change in Profit (Loss) Sharing Ratio: The profit-sharing ratio is a key concern for partners and is entirely based on their mutual agreement. When they decide to alter this ratio, it can be processed through a change in the Partnership Deed.
• Modification of Rights and Responsibilities: The Partnership Deed outlines the rights and responsibilities of each partner. Any change to these necessitates an amendment to the deed.
• Change of Duration of Partnership: If the partnership was initially established for a specific period, the partners might mutually agree to extend its duration. The reverse scenario is also possible.
• Any other change: This includes any addition, alteration, or deletion of a clause within the Partnership Agreement.

How to change the Partnership Deed?

To implement the proposed changes effectively, the partners need to modify the existing Partnership Deed. These changes are formalized through an agreement known as the Supplementary Agreement to the original Partnership Deed. Here are the steps the partners need to follow:

Step 1: Mutual consent of the partners:

The initial step is to discuss the proposed changes and their implications to gain the consent of all partners. Without unanimous consent, changes to the Partnership Deed cannot be made. Before consulting legal counsel or preparing the amendment deed, the partners should first ensure that all other partners agree to the proposed modifications.

Step 2: Preparation of the Supplementary Deed:

Based on the agreed-upon changes, the partners need to either draft the supplementary deed themselves or engage a professional who can assist with this process. A professional will help draft the deed while considering other relevant legal provisions and potential consequences. Once the draft agreement is prepared and all partners have reviewed and consented to it, the process can move forward to the execution stage.

Step 3: Execution of Supplementary Partnership Deed:

The execution of the deed involves several formalities that the partners must complete.

• Requirement of Stamp Duty: The deed amendment may involve changes in capital or other terms. If it includes a change in the firm’s capital, the stamp duty payable for the execution of the deed will be calculated based on the additional capital or the change in capital. The specific rates for stamp duty are prescribed by the relevant State Stamp Act. If there is no change in capital, the deed is typically executed upon payment of a nominal stamp duty (e.g., Rs 100).
• Signature & Notary: All partners of the firm are required to sign at their designated places within the supplementary deed. Additionally, they are usually required to initial the remaining pages. Furthermore, the deed needs to be attested by at least two witnesses who are not parties to the agreement. The signed deed then needs to be notarized by a competent authority.

Step 4: Filing with RoF:

If the partnership firm is already registered with the Registrar of Firms (RoF) in the concerned State, the partners must file the executed supplementary deed with the RoF. The application process with the RoF varies from State to State, but here are some general guidelines. A complete application for modification is filed in the prescribed form with the RoF. Along with the application, copies of the following documents are typically required:

• Original Partnership Deed and any previously executed Supplementary Agreements.
• The newly executed Supplementary Deed signed by the partners.
• If there is a change in partners, the identity proof and address proof of the new partners.
• If the business place has changed, the address proof of the new location, along with the rent agreement (if applicable) and a No Objection Certificate (NOC) from the owner.