A partnership deed is a legal document stating the rights and obligations among the partners of a company or business venture. It is basically an agreement that defines the terms of a partnership, as concerned with the profit-sharing ratio, capital contributions, and dispute resolution. The Partnership Deed Format allows for a very clear and transparent framework of operations such that all the parties concerned will be on the same page in terms of critical issues right from the beginning. This paper avoids misunderstandings and protects the interests of both parties.
What is Partnership Deed?
A partnership deed refers to a partnership agreement among the partners of the firm indicating terms and conditions in which the partnership between the partners is bound to operate. A partnership deed ensures there is a clear understanding of each other’s roles and duties, ensuring the smooth running of the firm’s operations.
A partnership deed is essential because It provides rules and regulations for the partnership. It holds the interests of all partners. It reduces conflicts and disputes. It gives legal recognition to the partnership.
Registration of Partnership Deed
All the rights and liabilities of each member are documented in a document called Partnership Deed. This deed may be oral or written; however, an oral agreement is of no use when the firm has to deal with tax. Some of the necessary characteristics of a partnership deed are:
- The name of the firm.
- Name and addresses of the partners.
- Nature of the business.
- The term or duration of the partnership.
- The amount of capital to be contributed by each partner.
- The drawings that each partner can make.
- The interest is to be allowed on capital and charged on drawings.
- Profit and loss sharing ratio.
- Rights of partners.
- Duties of partners.
- Remuneration to partners.
- The method used for calculating goodwill.
Partnership Deed Format
A Partnership Deed Format generally consists of the following main sections:
- Title: The title of the deed must reflect the nature of the agreement by using the word Partnership Deed
- Date: The date of the agreement.
- Details of the Partners: The deed contains the names, addresses, and respective positions of the partners. It makes clear who is involved and what responsibilities they have in the partnership.
- Business Name and Address: The name of the business shall be [Business Name]. The registered address shall be at [Business Address].
- Capital Contribution: The partners make the capital contribution for the partnership. The contribution by [Partner 1 Name] is ₹[Amount], and that by [Partner 2 Name] is ₹[Amount].
- Profit and Loss Sharing: Profits and losses will be divided between partners according to a ratio. For example, profits made will go to [Percentage]% to the pocket of [Partner 1 Name] and losses to the amount of [Percentage]%. The other partner, [Partner 2 Name], shall have the balance of the ratio.
- Management and Control: Each of the partners is given a distinct area of managing the business. [Partner 1 Name] will take care of [Area of responsibility], and [Partner 2 Name] of [Area of responsibility].
- Duration: The partnership will exist for [X] years or until dissolved earlier, or it may be an at-will partnership that can be terminated by any partner with notice.
- Rights and Liabilities: Partners have the right to manage the business, make decisions, and access profits. They also bear the responsibility for business debts and obligations in proportion to their share.
- Admission or Retirement: With the consent of all existing partners, a new partner may be admitted to the partnership. Similarly, a partner can retire by giving prior notice to the other partners.
- Liaison in Case of Dispute: Disputes will first be dealt with through friendly discussion. If not resolved, the partners agree to use mediation or arbitration to arrive at a solution.
- Dissolution: The partnership may be dissolved by mutual agreement, death, incapacity of a partner, or failure to meet financial obligations.
- Signatures: Every partner shall sign the deed. This deed is to signify agreement with the terms contained within it. The date of signing is included in the final deal.
Importance of Partnership Deed
There is no compulsion for the registration of a partnership deed, but it does provide the following advantages:
- Legal Recognition: A registered partnership deed gives legal identity to the business.
- Right to Sue: A registered partnership has the right to file a case in court in case of any form of dispute.
- Credibility in Banking Transactions: Banks prefer registered partnerships for loans and financial transactions.
- Protection Against Fraud: Legal registration prevents unauthorized changes in the partnership agreement.
- More Business Opportunities: More customers and suppliers believe in registered partnerships than unregistered partnerships.
Partnership Deed Format FAQs
1. What does the Partnership Deed Format contain?
A typical Partnership Deed Format contains the name of the partnership firm, partners’ names, capital contributions, profit-sharing ratios, roles, responsibilities, procedures for settling disputes, and terms for dissolution.
2. Is it mandatory under law to have a Partnership Deed?
A Partnership Deed is not technically required to create a partnership but is highly recommended. It ensures that the terms are well outlined and minimizes the chances of disputes.
3. Can a Partnership Deed be altered?
A Partnership Deed can be modified by mutual consent between all partners. The changes need to be done in writing and signed by all partners.
4. What if there is no Partnership Deed?
The absence of a Partnership Deed would mean that partners would be governed by the default provisions of the Indian Partnership Act, 1932, which might not be as the partners had wished, leading to potential disputes.
5. How to draft a Partnership Deed?
The terms of the partnership deed should be clearly and elaborately written down; there should be comprehensive details of all issues. It would be nothing wrong to seek the services of a legal jurisprudence expert or choose a well-known format of a partnership deed.
