What is a Partnership Deed?
A Partnership Deed is is a written legal document that consists of an agreement between two or more individuals who would like to manage and operate a business together in order to make a profit. It is a detailed Legal charter that dictates all the rights and functionalities of the partners in a Business venture.
A Partnership Deed is the most important document required while entering into a partnership. Although a it can be an oral or written, an agreement for partnership needs to be written.
Why is Partnership Deed required?
A few important advantages of a well-drafted partnership deed are:
- It regulates the rights, duties, and liabilities of each partner.
- It helps to avoid any misunderstanding between the partners because all the terms and conditions of the partnership have been laid down beforehand in the deed.
- Any dispute between the partners may be settled easily as the partnership deed may be readily referred to.
- It clears confusion as to what should be the profit and loss sharing ratio between partners.
- It clearly mentions who does what. Individual partner’s roles can be defined.
- It can also contain clauses which clarifies what should be remuneration (salary) to partners. Usually, remuneration is paid to working partners. However, interest payment is done to all partners who have brought in capital in the business.
What Does a Partnership Deed Contain?
A Partnership Deed consists of the below mentioned components that are required to be duly filled by the members in order to register their firm as a partnership.
- Name and addresses of all partners
- Date of establishment of partnership firm
- Capital contribution by each partner
- Guidelines for the operations of bank accounts
- Profit and loss sharing ratio of each partner
- Interest rate on borrowed capital or loan
- Rights and duties of each partner
- Rules for settlement of disputes among partners
- Rules in case of admission, retirement, or death of a partner
- Any other aspect regarding the code of conduct of business
What is the Legal Considerations for Partnership Deed?
Partnerships in India are governed by the Partnership Act 1932. The Partnership Deed created by and between the partners is required to be stamped properly, in accordance with the Indian Stamp Act. Each partner should also have a copy of the partnership deed. A copy of the deed must be filled with the registrar of the firm if it is being registered. Even though it is not mandatory to register a partnership firm, it is recommended to register the same due to the several benefits that registration offers.
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Note: This Post was last updated on November 23, 2022
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