Partnership deed is a written legal document that is also known as partnership agreement made between two individuals who have the intention of doing business with each other and share profits and losses. This document mentions all the essential terms and conditions related to the business, such as profit & loss sharing, obligations, admission of new partner’s, decided rules, salaries, exit process, etc. The partnership deed helps to resolve any disagreement or conflict which arises between the partners regarding the partnership terms. A Partnership deed, also known as the Partnership Agreement, is registered under the Indian Registration Act 1908, so there is no risk of the Deed of partnership being destroyed in possession of the partners. Also, registration of the partnership deed provides several benefits, such as making the organization eligible for PAN and opening a bank account. The purpose of a partnership deed is to give a clear understanding of the roles of all partners, ensuring the smooth running of the operations of the partnership firm.
Importance of a Partnership Deed
- A partnership deed defines the position of the partners of the firm.
- It regulates the liabilities, rights and duties of all partners.
- It helps to avoid misunderstandings between the partners since all of the terms and conditions of the partnership are specified in the deed.
- In the case of a dispute amongst the partners, it will be settled as per the terms of the partnership deed.
- There will be no confusion between the partners regarding the profit and loss sharing ratio amongst them.
- It mentions the role of each individual partner.
- It contains the remuneration that is to be paid to partners, thereby avoiding any dispute or confusion.
Partnership deed is written or created with the following basic information’s:
- Name and address of the firm as well as all the partners.
- Nature of business to be carried out by the firm.
- Date of commencement of business.
- Duration of partnership (whether for a fixed period/project)
- Capital contribution by each partner.
- Profit sharing ratio among the partners
ESSENTIAL CLAUSES OF A PARTNERSHIP DEED
The partnership deed contains the following details:
NAME OF THE FIRM
The partners of the firm should decide the firm’s name which adheres to the provisions of the Partnership Act. The firm name is the name under which the business is conducted.
DETAILS OF THE PARTNER
The deed should include details of all the partners, such as their names, addresses, contact number, designation, and other particulars.
BUSINESS OF THE FIRM
The deed should mention the business that the firm undertakes. It may be dealing with producing goods or rendering services.
DURATION OF FIRM
The deed should mention the duration of the partnership firm, i.e. if the firm is constituted for a limited period, for a specific project or for an unlimited period.
PLACE OF BUSINESS
The deed should contain the principal place of business where it carries on the partnership business. It should also mention the names of any other places where it conducts business.
Each partner will contribute an amount of capital to the firm. The entire capital of the firm and the share contributed by each partner are to be mentioned in the deed.
SHARING OF PROFIT/LOSS
The ratio of sharing profits and losses of the firm amongst partners should be noted in the deed. It can be shared equally amongst all partners, or according to the capital contribution ratio or any other agreed ratio.
SALARY & COMMISSION
The details of the salary and commission payable to partners should be mentioned in the deed. The salary and commission can be paid to the partners based on their role, capabilities or any other capacity.
The drawings from the firm allowed to each partner and interest to be paid to the firm on such drawings, if any should be mentioned in the deed.
The deed should mention whether the business can borrow loans, the interest rate of loans, properties to be pledged, etc. It can also mention if a partner of the firm can borrow loans from the business or not.
DUTIES AND OBLIGATIONS OF PARTNER’S
The rights, duties and obligations of all the partners of the firm should be mentioned in the deed to avoid future disputes.
ADMISSION, DEATH & RETIREMENT OF PARTNER’S
The deed should mention the date of admission of the partner, the regulations governing the admission of a new partner, resignation, or changes after the death of a partner of the firm.
ACCOUNTS & AUDIT
The deed should contain details about the audit procedure of the firm. It should mention the details of how the partnership accounts are to be prepared and maintained.
Below are the points to be kept in mind while drafting the partnership deed:
- The deed should contain the clauses as mentioned above.
- It must be executed by at least two or more partners.
- It should be drafted by mutual agreement between the partners.
- Ambiguous clauses and sentences must be avoided. The clauses must clearly state the details/description.
- It should be printed on an e-stamp paper of a value of Rs.200 or more.
- It should be signed by all the partners on all pages of the deed.
Jibran Farooqui is a seasoned professional with a passion for driving business growth and expansion. As a Business Expansion Expert at Juris Consultants, he brings a wealth of experience and a strategic mindset to help businesses navigate the complexities of growth in an ever-evolving market. With a background in business development and a deep understanding of the legal and regulatory landscape, Jibran is well-equipped to guide clients through the intricacies of expanding their operations. He specializes in developing market entry strategies, forging international partnerships, and optimizing business processes to maximize profitability.