What is Partnership Deed
Partnership deed is an agreement between the partners of a firm that outlines the terms and conditions of partnership among the partners. A Partnership is the relation between persons who have agreed to share profits of the business carried on by all or any of them acting for all.
An Agreement is the essential part of partnership business as it secure the right of both party. It establishes the responsibilities, and profit and loss distribution of each partner, as well as other rules about the general partnership, like withdrawals, capital contributions, and financial reporting.
However, a Firm is a not separate legal entity and suffers from unlimited liability. As a result, the partners of this business format need to indemnify the losses incurred by the firm beyond the amount invested by them. Further, this business format lacks in continuity as well. That means in the event of death, bankruptcy, and insolvency, the firm will come to an end, and the partners need to draft a new partnership deed.
There are two types of Partnership Firms, which are as follows:
- General Partnership;
- Partnership at Will
The Indian Partnership Act, 1932 is the law governing partnerships in India. General principles of Contract Act, 1872, may also apply in context of an agreement.
People also refer to a Partnership Agreement as General Partnership Agreement, Partnership Contract, Articles of Partnership or Business Partnership Agreement
Benefits of a Partnership deed
The benefits of a partnership deed are as following:
- It monitors and balances the rights, privileges, duties, and responsibilities of all partners
- It also helps in preventing any confusion and misinterpretation between the partners as all the clause of the alliance have been pre-contracted
- Additionally, It helps in settling disputes between the associates by referring to the points mentioned in the deed.
- It clears uncertainties in terms of profits and losses ratio between partners.
- Furthermore, it clearly outlines the Responsibilities and duties of every partner;
- The agreement defines the salary or remuneration offered to each partner;
- It also provides details regarding the amount invested by each partner in the firm.
Elements of Partnership Agreement
The elements of Partnership Agreement are as following:
- Lawful business: The term “business” includes all trades, professions or occupations. The purpose of partnership agreement is to carry on a lawful business and nothing else.
- Name of the business: The partnership firm must have its own name.
- Association of persons: You need at least two persons to make a partnership.
- Contractual relationship to share profits: Partnership is a contractual relationship between the persons who are competent to enter into a contract. The relationship between partners arises from contract and not from status and is in order to share profits.
- Mutual trust and confidence: Furthermore, the successful working of a partnership depends on mutual trust and confidence of its partners.
- Restrictions on transfer of share: No partner can transfer his share in the partnership without the prior consent of all the other partners. Thus, a partner cannot transfer has interest at his own will.
- Unlimited liability: Partnership is based on the principle of unlimited liability. The personal property of the partners can be attached to satisfy the claims of creditors of the firm, if the assets of the firm are insufficient to meet the claims of the creditors.
Contents of a Partnership Deed Format
The components of a Partner Deed Format are as following:
- Name of all the Partners;
- Address of all the Partners;
- Name of the Partnership Firm;
- Registered Address of the Partnership Firm;
- Date of Incorporation of Partnership Firm;
- Accounting Period for the Partnership Firm;
- Term and Duration of Partnership;
- Capital Contribution by each Partner;
- Guidelines regarding the Opening of Bank Accounts;
- Drawings allowed to each Partner;
- Profit and Loss Ratio for each Partner;
- Rate of Interest on Borrowed Loan and Capital;
- Remuneration to each Partner;
- Rights and Duties of each Partner;
- Specific Liabilities of each Partner;
- Mode of Auditor’s Appointment;
- Provisions for the Settlement of Disputes between Partners;
- Provisions regarding the Admission, Retirement, and also Death of Partner;
- Method of calculating Goodwill;
- Non-Disclosure clause;
- Also any other aspect concerning the Code of Conduct of Business.
FAQs
As per The old Companies Act,1956 there was a limitation on the maximum number of the member that is for banking business it’s 10 & for non-banking business its 20.
Registration is optional for partnership, but it is always advisable to register the partnership firm. The reason behind registration is simple that registered partnership firms enjoy some more rights than unregistered firms.One should note that registration with the Income Tax Department is different than registration of firms with Registrar of Firms. Registration for income tax in anyhow mandatory for all the firms.
A Partnership Firm can be dissolved in any of the following ways:
-If formed for a specific period of time, on the expiry of the term.
-If it is created with the purpose of performing a certain act, on completion of the act it can get dissolved
-Death of any partner
-When a partner becomes insolvent
-Dissolution by mutual agreement between partners
-When an event happens which makes the business unlawful, the firm gets dissolved
-After giving notice from all the partners the firm gets dissolved
-If the court finds out in a suit that any unfavorable situations then the court may dissolve it.
Hi @Aditya_s,
Company formation documents are the key pieces of documentation issued after the successful registration of a new limited company. You must retain these important documents, ideally at your registered office address, because you will need to refer to them throughout the lifetime of your company.