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A partnership deed is an agreement between the partners of a firm that outlines the terms and conditions of partnership among the partners. A partnership firm is one of the popular types of organisations for starting a new business.
The smooth and successful running of a partnership firm requires a clear understanding among its partners regarding the various policies governing their partnership. The partnership deed serves this purpose. The partnership deed contains various terms such as profit/loss sharing, salary, interest on capital, drawings, admission of a new partner, etc. in order to bring clarity to the partners.
A deed of partnership also known as a partnership agreement is a legal document signed by two or more partners who come together and decide to run a business for profit. The partnership deed helps to resolve any disagreement or conflict which arises between the partners regarding the partnership norms. The purpose of a partnership deed is to give a clear understanding of the roles of all partners, ensuring the smooth running of the operations of the partnership firm.
A partnership deed defines the position of the partners of the firm. Below is the importance of a partnership deed:
The partnership deed contains the following details:
The partners of the firm should decide the firm’s name which adheres to the provisions of the Partnership Act. The firm name is the name under which the business is conducted.
The deed should include details of all the partners, such as their names, addresses, contact number, designation, and other particulars.
The deed should mention the business that the firm undertakes. It may be dealing with producing goods or rendering services.
The deed should mention the duration of the partnership firm, i.e. if the firm is constituted for a limited period, for a specific project or for an unlimited period.
The deed should contain the principal place of business where it carries on the partnership business. It should also mention the names of any other places where it conducts business.
Each partner will contribute an amount of capital to the firm. The entire capital of the firm and the share contributed by each partner are to be mentioned in the deed.
The ratio of sharing profits and losses of the firm amongst partners should be noted in the deed. It can be shared equally amongst all partners, or according to the capital contribution ratio or any other agreed ratio.
The details of the salary and commission payable to partners should be mentioned in the deed. The salary and commission can be paid to the partners based on their role, capabilities or any other capacity.
The drawings from the firm allowed to each partner and interest to be paid to the firm on such drawings, if any should be mentioned in the deed.
The deed should mention whether the business can borrow loans, the interest rate of loans, properties to be pledged, etc. It can also mention if a partner of the firm can borrow loans from the business or not.
The rights, duties and obligations of all the partners of the firm should be mentioned in the deed to avoid future disputes.
The deed should mention the date of admission of the partner, the regulations governing the admission of a new partner, resignation, or changes after the death of a partner of the firm.
The deed should contain details about the audit procedure of the firm. It should mention the details of how the partnership accounts are to be prepared and maintained.
Note: The above contents/clauses are general clauses and there may be some other clauses that can be added to the partnership deed.
The partnership deed can be oral or written. However, it is better when the partnership deed is written since it helps to avoid any future conflict and is also useful for tax purposes and registration of the partnership firm. The partnership deed can be drafted by all the partners after coming to a mutual agreement regarding the clauses of the deed. It can also be drafted by a legal professional.
Below are the points to be kept in mind while drafting the partnership deed:
The partnership deed is registered under the Indian Registration Act, 1908. It must be printed on non-judicial stamp paper with a value of Rs.200 or more based on the capital of the partnership firm. It has to be signed by all the partners and each partner should have a copy of the partnership deed.
After the deed is signed by the partners, it must be registered with the Sub-Registrar/ Registrar Office of the jurisdiction where the partnership firm is located. The stamp duty for registering the partnership deed varies from state to state. The respective states’ Stamp Act prescribes the stamp duty to be paid to the Sub-Registrar at the time of registration. The notarization of the partnership deed is required along with its registration. The registration of the partnership deed makes it legally valid.
The documents required for registration of a partnership deed are as follows:
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. Additionally, a written partnership deed is required for tax purposes and registration of the partnership firm. Thus, the partnership agreement should be written rather than oral.
Yes. 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.
The respective states’ Stamp Act prescribes the stamp duty to be paid to the Sub-Registrar at the time of registration of partnership deeds. Even though the stamp duty charges differ from state to state, the partnership deed has to be notarised on a non-judicial stamp paper with a minimum value of Rs.200 or more.
It is not mandatory to register a partnership deed, but the partners must register the deed to make it legally enforceable. The partners should register it with the Sub-Registrar/ Registrar Office of the jurisdiction where the firm is located by paying a nominal court fee and stamp duty. Each partner has to also submit an affidavit on a stamp paper of Rs.10, stating their intention to enter into a partnership.
Yes, notarisation of the partnership deed is required along with its registration. Notarisation of the partnership deed makes the agreement between partners legal which can be defended in the court of law if any conflicts arise between them. All partners should notarise the partnership deed by signing the deed in front of the public notary.
Yes. The partnership deed can be modified, altered or changed at any time by mutual consent of the partners. The modified deed should be signed by all the partners. The modified partnership deed should be registered with the Sub-Registrar’s office where the original deed was registered. It must also be submitted to the Registrar of Firms for their record.