One of the most common types of entities to start a business is the partnership firm. It is the most common type of entity created which does not require a large amount of investment or capital.
To form a partnership, it is important to create a partnership deed to establish the given set of terms and conditions between the partners. Terms and conditions relating to decisions regarding who runs the businesses, profit sharing, liabilities, etc.
This deed is to ensure that the partners do not disagree, or conflict over partnership norms. This norm is registered under the partnership act of 1932. This article let us understand more about this deed with terms and conditions relating to it.
A partnership deed is a written legal document signed by two or more individuals, who decide to come together to run a business, regardless of the profit or loss that they have incurred together.
This is an important piece of document which helps establish all the important terms of the business including profit/loss sharing between partners, type of partners, salary, interest on capital, drawings, admission of a new partner, etc. This document helps bring clarity to the partnership firm.
A business can run smoothly and without any hassle, if there is a clear understanding between all the members who run the business. A partnership deed helps establish just that. Concerning any misunderstandings or conflict, a partnership deed is just the right tiebreaker.
1. A partnership deed helps regulate the rights, duties, and liabilities of partners
2. It helps in avoiding misunderstandings among partners since all terms and conditions of partners are specified
3. In case of dispute or misunderstandings, a partnership deed helps settle the same
4. There is no confusion among partners concerning the profit or loss-sharing ratio
5. It mentions the role of individual partners
6. It contains the remuneration of each partner, thus avoiding any dispute or confusion
A partnership deed includes the following details:-
1. Partners of the firm who will conduct business on behalf of the firm
2. Partnership duration: the period for which this partnership will exist. Whether it is for a specific time or a specific project
3. Share of profit/losses: share of profits or losses between partners
4. Paying partners remuneration of salaries, if any
5. Capital contribution: each partner pays a required amount of capital in the business and those partners are required to get interest on capital
6. Partner’s drawings: the company’s policy governing partner’s drawing permits each partner to pay interest, if any, on such drawings
7. Partner’s loan
8. Duties and obligations of each partner
9. A partner’s admission, death, or retirement
10. Accounts and audit
A partnership deed is either written or oral. However, to have proof and to avoid future conflicts or disputes is also useful for tax purposes and registration of partnership. This partnership deed can be drafted by all partners after coming to a mutual agreement regarding the clauses of the deed. It can also be drafted by a legal professional.
Some of the points which should be kept in mind while drafting a partnership deed are as follows:-
1. The deed should contain the clauses mentioned above
2. It must be executed by at least two or more partners
3. It must be drafted by mutual agreements between the partners
4. Ambiguous clauses and drafts must be avoided. It must clearly state the details and descriptions
5. It should be printed on an e-power stamp of a value of Rs.200 or more
6. It must be signed by all partners on all pages of the deed
The following documents are mandatory for a partnership deed:-
1. PAN card of all partners
2. Address proof of all partners, like voter ID, Aadhar card, and driving license
3. Address proof of the firm
Yes, an oral partnership deed is valid. Although the oral partnership deed is valid, practically it is better when the partnership deed is written. A written partnership deed helps to avoid any future conflict.
A true copy of the deed of a partnership must be filed with the Registrar of Firms to get the partnership firm registered. It is an essential document that is to be submitted to the Registrar of Firms.
Yes, a notarization of the partnership deed is required along with its registration. Notarization of the partnership deed agrees with the partners' legal rights which can be defended in a court of law if any conflicts arise between them.