A Partnership Deed is a written agreement that establishes the regulations and duties of every partner who is entering a partnership firm. Making a draft Partnership Deed is the initial base where the most important contents are fulfilled accordingly. The additional clause can be added or removed with the mutual consent of all the partners involved.
A Partnership Deed is a critical agreement where the terms and conditions of running a partnership firm are jotted down along with the roles and responsibilities of every partner.
Every single content in a draft Partnership Deed is important and needs to be thoroughly revised and checked before processing. The partners mutually agree to any clause which can be altered according to their requirements.
Meaning of Partnership Deed
When two or more individuals form a business together and share profits/losses equally, they form a partnership firm under the Indian Partnership Act 1932. There are two types of partnership firms: a) General Partnership and b) Partnership at will.
- A Partnership Deed is an element here, which is a written document outlining the roles and responsibilities of each partner to avoid further queries and complications.
- It governs the interest of all partners where they share profit/loss either equally or by the percentage of their capital contribution.
- A partnership agreement can also be an oral agreement, but a written one has more value and is useful for solving conflicts in the future. A draft Partnership Deed can be formally made and then finalized later before Partnership firm registration.
- The partners are required to have their agreement stamped as deciphered by the Indian Stamp Act and the Partnership firm registration is done with the Registrar of Firms.
Some key factors to keep in mind while making a Draft Partnership Deed
There are a few key points that are required for forming a draft Partnership Deed. They are:
- The number of partners: Generally, there is a requirement for two or more partners to form a partnership and make a draft Partnership Deed. It is limited to a maximum of 10 members in the banking sector and up to 20 members in non-banking sectors. For a partnership firm, the max number of partners can be 50-100, depending on the current law.
- Capital Contribution: the partners are not bound to a specific amount of capital. They can choose to contribute the capital as they wish; there is no maximum or minimum limitation, as they can start with any amount which seems preferable for the business partnership.
- Stamp Duty: The stamp duty is also calculated on the capital contribution by the partners.
- Business name: The firm should be a new name that is simple and easy. The name should not be offensive or portray any undesired intentions.
Importance of Partnership Deed
A Partnership Deed holds significance, and such care is also taken while making a draft Partnership Deed where the clause is input. There are many importances of a Partnership Deed, and it can be very beneficial if processed correctly. The points are as follows:
- It helps in monitoring and supervising the roles, responsibilities, duties, and liabilities of the partners entering into a partnership agreement.
- The chances of disputes and conflicts are decreased. If any such case arises the partner can take legal advice on such crucial matters to solve them efficiently.
- The issues regarding the share of profit/loss are solved with such an agreement, and it helps in clearing any misunderstanding that may occur.
- The output of every partner is stated. Their duties and responsibilities are discussed while forming a draft Partnership Deed, and necessary changes are made if needed.
- The details of the capital contribution of each partner are stated clearly. It also defines the remuneration or salary they will receive.
Important factors in a Partnership Deed format
There are several vital factors to take into consideration while making a draft Partnership Deed format. They are as follows:
- A Partnership Deed helps in establishing a balance in a relationship from a legal perspective.
- It is a mutual agreement between the partners.
- Two partners are required at the minimum to form a partnership and to make a draft Partnership Deed.
- The partners must decide the share of profit/loss and have a mutual understanding.
- A partner can act on behalf of other partners and similarly, every partner can be liable and accountable for other partners.
Format of draft Partnership Deed
A draft Partnership Deed consists of various components which make it a crucial agreement. These are entered into a draft Partnership Deed to make changes and decide the clause with the necessary changes made to terms and conditions. These components of the draft Partnership Deed are as follows:
- The names and addresses of each partner must be mentioned in a draft Partnership Deed format.
- The partnership firm name should be stated.
- The address legally registered to the partnership firm must be mentioned.
- The capital contribution by the partners must be elaborated in the draft Partnership Deed.
- The accounting period and date of commencement are mentioned.
- The guidelines or rules regarding the bank account opening.
- The ratio of profit/loss will be shared among the partners.
- The amount which partners can draw must be mentioned in the draft Partnership Deed.
- Capital and loan interest rate.
- The salary or remuneration is to be stated for each partner. The draft Partnership Deed is done like a base for the main agreement, so changes and alterations can be done.
- The Mode of Auditor’s appointment (if any).
- The roles and responsibilities of each member are mentioned along with the rules and regulations.
- Liabilities for each partner which is specific.
- The handling and treatment of loss that may be caused due to the insolvency of any partner.
- Dispute and conflict settlement provisions.
- The terms regarding the invitation, admission, retirement, or death of a partner.
- The goodwill calculation method should be stated in the draft Partnership Deed.
- The account settlement method if the firm is dissolved and the dissolution of the partnership firm.
- Any other clause can be established relating to the business and its requirements in the future, in which partners mutually decide to form a draft Partnership Deed.
The Partnership Deed is a vital agreement for running a partnership firm as it keeps the terms and conditions upheld for smooth commencement. Disputes or misunderstandings may take place while making the draft Partnership Deed, but they can be easily handled by taking legal advice and solving queries with the lawyer’s help.