A partnership deed is a legal document that specifies the terms for a business operated by two or more individuals. It addresses key elements such as profit-sharing, responsibilities, rules, and other important details. Also referred to as the Partnership Agreement, this document carries legal significance. Beyond being a legal record for court purposes, it offers advantages like eligibility for a PAN, the ability to open a bank account, and obtaining GST registration or an FSSAI license for the business. Grasping the definition of a partnership deed is essential for establishing and managing partnerships effectively.
A partnership deed is a written legal document that outlines an agreement between two people who intend to do business together and share profits and losses. It is also known as a partnership agreement. This document offers several advantages, like obtaining GST registration and getting an FSSAI license.
What is a partnership deed?
A partnership deed is a legal document that serves as the foundation of a partnership firm, defining the terms of the partnership agreement among its members. This comprehensive document outlines various aspects of the partnership, including the roles, responsibilities, rights, and obligations of each partner involved. It specifies essential details such as the name and address of the partnership firm, the names and addresses of the partners, the nature of the business, the capital contributions made by each partner, and the profit-sharing ratios agreed upon.
Additionally, a partnership deed may cover other critical aspects such as the duration of the partnership, decision-making processes, and procedures for admitting or retiring partners, methods for resolving disputes, and provisions for the dissolution of partnership firm. By clearly documenting these terms, a partnership deed helps in establishing mutual understanding and trust among the partners, minimizing conflicts, and ensuring the smooth operation of the partnership business. It provides legal recognition to the partnership and serves as a reference point for resolving any disputes or disagreements that may arise during the course of the partnership.
Necessity of Partnership Deed
A partnership deed, ideally written, is very important for a business. An oral agreement lacks legal power, but a written deed is crucial in disputes. It clearly states the terms and conditions, helping to prevent misunderstandings among partners. It specifies duties, profit/loss sharing, and each partner's investment. The significance of a partnership deed is clear, as it reduces the chances of conflicts and ensures a better understanding among business owners.
Importance of a partnership deed
- A partnership deed provides clarity and transparency regarding the roles and responsibilities of each partner, minimizing disputes and misunderstandings.
- It establishes the terms of the partnership, including profit-sharing arrangements, capital contributions, and decision-making processes.
- The partnership deed helps in protecting the interests of all partners and ensures the smooth functioning of the partnership business.
Types of partnership deeds
- General partnership deed: This type of deed is suitable for partnerships where all partners have equal rights and responsibilities.
- Limited partnership deed: In a limited partnership, there are both general partners with unlimited liability and limited partners with liability restricted to their capital contribution.
- Partnership deed with sleeping partners: This deed includes provisions for partners who contribute capital but do not actively participate in the management of the business.
How to Draft a Partnership Deed?
Partners can work together to draft the deed, making sure everyone agrees on its terms. They can also seek help from legal professionals.
- The deed should include key clauses that define the partnership's terms and conditions
- At least 2 partners must be involved in creating the deed
- The deed should show that all partners agree
- Avoid unclear clauses and ensure all details are clear and precise
- Use a non-judicial e-stamp paper worth Rs. 200 or more, depending on the firm's capital
- All partners must sign each page of the deed
Partnership deed registration
All the rights and responsibilities of each partner are documented in a Partnership Deed. This deed can be either oral or written; however, an oral agreement is not effective when it comes to tax matters. Some key features of a partnership deed include:
- The name of the firm
- Names and addresses of the partners
- Nature of the business
- Duration of the partnership
- Amount of capital each partner will contribute
- Allowed drawings for each partner
- Interest applicable to capital and drawings
- Rights of the partners
- Duties of the partners
- Remuneration for partners
- Method for calculating goodwill
- Profit and loss sharing ratio
Unregistered partnership deed
An unregistered partnership deed, according to the Indian Partnership Act of 1932, is a written agreement that is not officially recorded with the Registrar of Firms. It is still valid among partners but has some limitations:
- It cannot be used as evidence to resolve disputes in court, either between partners or with third parties
- Partners cannot enforce the terms of the partnership deed against outsiders
- Partners cannot claim tax benefits or deductions unless the deed is registered
- During a dispute, partners cannot sue each other or the firm
Documents required for partnership deed registration
- Copy of the partnership deed signed by all partners.
- Application form for partnership registration.
- Proof of address of the partnership firm.
- Identity proof of all partners.
- Payment of registration fees as prescribed by the Registrar of Firms.
Partnership deed contents
When drafting a partnership deed, it is essential to include all relevant provisions and legal aspects. This deed should also outline basic guidelines for future projects and can serve as evidence in case of disputes or legal proceedings. A general partnership deed should contain the following information:
- The name of the firm as agreed upon by all partners
- Names and details of all partners
- The date the business commenced
- Duration of the firm's existence
- Capital contribution from each partner
- Profit-sharing ratio among partners
- Duties, obligations, and powers of each partner
- Salary and commission, if applicable, payable to partners
- Process for admitting or retiring a partner
- Method for calculating goodwill
- Procedures to follow in case of disputes between partners
- Steps to take if a partner becomes insolvent
- Procedures for settling accounts upon dissolution of the firm
Business loans can provide financial support for partnership firms looking to expand their operations or address capital requirements while ensuring compliance with the terms outlined in the partnership deed.
