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 organizations for starting a new business. The smooth and successful running of a partnership firm requires clear understanding among its partners regarding the various policies governing their partnership. The partnership deed serves this purpose. It specifies the 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.
Though issuing a partnership deed is not mandatory, but it’s always better to enter into a partnership deed to avoid any possible disputes and litigation among the partners. The agreement can be made between two or more partners. It must be stamped and signed by all the partners.
The partnership deed contains the following details:
i) Business of the firm: Business to be undertaken by the partners of the firm
ii) Duration of Partnership: Whether the duration of the partnership firm, is for limited period or for a specific project
iii) Sharing of profit/loss: Ratio of sharing profits & losses of firm among partners
iv) Salary and commission: Details of the salary, and commission if any, payable to partners
v) Capital contribution: Capital contribution to be made by each partner and the interest on said capital to be paid to partners
vi) Partner’s Drawings: Policy regarding the drawings from the firm allowed to each partner and interest if any to be paid by partner, to firm on such drawings
vii) Partner’s Loan
viii) Duties & Obligations of partners
ix) Admission, Death & Retirement of partner
x) Accounts & Audit
Note: The above elements are general clauses and there may be some other clauses which can be added to the partnership deed.