What is Partnership Deed?
A partnership deed is a legal document in a written format that contains an agreement between two persons who want to undertake business together and share the profit as well as losses. It is also referred to as a partnership agreement where the business is registered as a partnership firm. In this, two persons agree to share profits and losses in a defined manner to begin a new business.
What is present in the partnership deed
When it comes to the contents of the partnership deed, it consists of all the legalities and the conditions of it. It would offer a guiding basis for all the activities of the future. And in case of legal proceedings or dispute, it can also be made into use as evidence. A general partnership deed would include several details which are as follows:
- The prescribed name of the partnership firm. Make a note that such a name cannot include the words like “private company” or “company” in the deed.
- Business commencement data
- The business nature would also be mentioned in the deed.
- The contribution to the capital of all the partners
- Salary of all active partners
- It even contains a profit sharing ratio. But, if no ratio is mentioned, it is considered that the profit is equally shared by all the partners.
- The interest on drawings and interest on the contribution (should be according to the provisions of the Indian Partnership Act 1932).
- Guidelines for the process of arbitration to be followed and solving any disputes.
- Terms and conditions of the expulsion or retirement of a partner, and the rules to continue the partnership after such an occurrence.
- The distribution of the managerial duties among the partners and the day-to-day functioning of the firm.
- Process for forced or voluntary dissolution of the firm.
- The provisions for internal and statutory audit and preparation of the company’s accounts.
- The location of the business, i.e., addresses of branch offices or main office if any, where communication can be sent.
Partnership Deed Format
As mentioned above, a partnership deed is nothing but an agreement between the two individuals of a firm that defines the terms and conditions of partnership among the partners. A partnership firm is one of the famous kinds of companies for beginning a new business. The streamlined and successful functioning of a partnership firm needs a precise understanding among its partners regarding the different policies governing their partnership.
The deed of the partnership serves this purpose. It states the distinct terms like salary, profit or loss sharing, admission of a new partner, drawings, interest on capital, etc. Even though it is not mandatory to issue a partnership deed, it is always a good idea to enter into a partnership deed to get rid of any possible litigation and disputes among the partners. However, remember to execute the deed between the partners. It should be signed and stamped by all the partners.
Data present in the partnership agreement are listed below:
- Period of Partnership: Whether the period of the partnership company is for a specific project or a limited duration.
- Business of the Firm: Business to be carried out by the partners of the company.
- Capital Contribution: The contribution of the capital and the interest on said capital to be paid.
- Drawings of Partner: Policy regarding the drawings from the company permitted to every partner and if any interest to be paid by partner, to the company on such drawings.
- Salary and Commission: Data of the commission and salary if any, payable to partners.
- Profit/loss Sharing: Sharing ratio of profits and losses of the company among partners.
- Accounts and Audit
- Loan of the partner
- Obligations of the partners including the duties
- Start date, end date/demise date of the partner
Partnership Deed Registration Process
As per the Indian Partnership Act 1932, there is no time limit to register a partnership firm. The company can be registered on the date of its incorporation or any such date after so after duly paying the fees and penalty (if any). The stepwise process for the registration is listed below.
- Application to the Registrar of Firms in Form A and this provision is also available online nowadays. Such an application should include several basic data about the company like,
- Name and address of all partners
- Name of the partnership firm
- Duration of the partnership
- Location of business (address of main as well as branch offices)
- Date of partner’s joining
- Duration of the partnership
- Date of business commencement
- The duly signed copy of the agreement with a mention of all the rules and regulations should be filled with the registrar.
- Make payment for stamp duties and other essential fees
- Once the registrar approves the application, the company name will be entered into the records and can collect the incorporation certificate.
- Now the company is legally authorized
FAQs related to Partnership Deed
1. What is the min age to become a partner in a partnership firm?
Every adult in India upon completing 18 years can become a partner in the partnership firm.
2. Is it essential to set up a partnership firm?
Not necessarily but the formation of a partnership firm assists in different ways such as investment, understanding roles, and the ratio of profit & loss as it is documented and legal. Moreover, it will also help in case of any suit of legal or court formalities.
3. Is a partnership deed essential to form a partnership firm?
Not, not at all. But, it is often wise to form a partnership deed to produce to clients with whom the partnership firm deals, income tax authorities, and the bank.
4. How many partners are required to form a partnership?
To form a partnership, there should be a maximum of 10 persons and a minimum of 2 persons if an organization is in the banking business, and in the case of non-banking business, the partners can be up to 20 individuals.
5. Do a partnership firm be compulsorily registered?
No, it is not necessary. But, to enforce the rights of the partners inter se or against strangers in a court of law, a partnership firm should be registered with the Registrar of Firms and societies.
6. How profit and loss are distributed among the partners?
Usually, the profit and loss are equally distributed but it also relies on the interest of the partner according to his or her investment. The sharing ratio of profit and loss that is defined prior to the registration marks the actual division of profit and loss percentage.
7. Is there an option to alter or modify the partnership deed?
Of course, you can alter or modify the partnership deed by filling up a form and giving it to a particular authority or registrar.
8. Is there any duration to register as a partnership firm?
There is no specific duration to register a partnership firm as it can be registered anytime according to the choice of the partner but it should be before the start of business or else after its commencement.