A partnership deed is an agreement between the partners of a firm that outlines the terms and conditions of partnership among the partners. A partnership firm is one of the popular types of organizations for starting a new business.
A partnership deed is also called a partnership agreement, a written document among partners engaging in a business together. Indian law provides entrepreneurs with several options for starting a business. And owing to myriad benefits, a partnership firm is one of the most preferred choices amongst entrepreneurs.
However, running a business in partnership isn’t easy and involves a lot of planning and risk; factors like disagreements, money or any other internal conflict can lead to a fallout. Before embarking on a new journey and investing all your savings and efforts towards starting your new joint venture, it is wise to sign a partnership deed, a legal practice that can help protect the interests of each party involved in the business partnership.
What is a Partnership Deed?
The smooth and successful running of a partnership firm requires a clear understanding among its partners regarding the various policies governing their partnership. The partnership deed serves this purpose. The partnership deed contains various terms such as profit/loss sharing, salary, interest on capital, drawings, admission of a new partner, etc. in order to bring clarity to the partners.
This document plays a vital role, and if the firm ends up in a courtroom for some reason, it can be served as a legal document. A Partnership deed, also known as the Partnership Agreement, is registered under the Indian Registration Act 1908, so there’s 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. It helps obtain GST registration or FSSAI license in the organization’s name.
Importance of a Partnership Deed
A partnership deed defines the position of the partners of the firm. Below is the importance of a partnership deed:
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.
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A partnership deed includes the following information:
Purpose of Partnership: The name and address of all the partners and other necessary details to explain the type of business undertaken by the partners.
Principal place of business of partnership: The firm will operate from such location(s) as the Partners determine from time to time.
Partnership duration: The Deed must mention the firm’s establishment date and the deal period.
Capital contribution: Contribution of the firm’s capital, cash, property, goods, or services in agreed-upon value (partnership contribution share-wise).
Capital Withdrawals: Details of the drawing policy permitted to every partner and whether any interest will be paid to the firm on such drawing.
Salary & Commission: Details of the ratio or percentage of the partners’ salary.
Profit & loss ratio: Profit/Loss ratio to be accrued to and be borne by the Partners
Regulation for dissolving partnership: Details of the firm’s accounts and how it will be treated if the firm is dissolved.
Rules for admission of a new partner: Details regarding the future admission, retirement and exit of a partner.
Rules to be followed: Guidelines to be followed if a partner goes bankrupt.
Account and audit details: Accurate and complete books of account of the firm’s transactions to be available at all reasonable times and open to inspection and examination by any partner.
Voluntary Withdrawal of a Partner: Rules for voluntary withdrawal to be mentioned in the Partnership Deed.
Duties of Partners: It mentions the role and responsibilities of each partner.
Banking and Partnership Funds: The funds held in the firm’s name will be placed in a bank account designated by the Partners.
Borrowings: A written consent of all the partners will be required for taking loans from banks, financial institutions, or any third parties for the firm’s financial requirements.
Partnership Financial year
Documents Required to Form a Partnership
A set of documents is required to register for a partnership deed. The documents needed to form a partnership are as follows:
PAN Card of each partner
Application form No. 1
Partnership deed copy signed by all the partners
PAN of the firm
Address proof all the partners
Address proof of the organization
An affidavit of acknowledgement with all the details and attested by the notary.
Photographs of all the partners
An official authority must sign the documents that are required for the registration of the partnership deed.