Partnership Deed

A partnership is a kind of business where a formal agreement between two or more people is made and agreed to be the co-owners, distribute responsibilities for running an organization and share the income or losses that the business generates. This features of partnerships are documented in a document which is known as partnership deeds.

What is a Partnership Deed?

A partnership deed also called as a partnership agreement, is a record that outlines in detail the rights and functionalities of all parties to a business operation. It has the force of law and is designed to guide the partners in the conduct of the business.

Partnership Deed

The Partnership comes into the limelight when:

  • There is an outcome of agreement among the partners.
  • The agreement can be either in written or oral form
  • The Partnership Act does not demand that the agreement has to be in writing. Wherever it is in the form of writing, the document, which comprises terms of the agreement is called ‘Partnership Deed’
  • It normally comprises the attributes about all the characteristics influencing the association between the partners counting the aim of trade, contribution of capital by each of the partner, the ratio in which the gains and losses will be divided by the partners and privilege and entitlement of partners to interest on loan, interest on capital, etc.,

The sections of partnership deed can be modified with the accord of all the partners. The deed must be appropriately drafted and outlined as per the provisions of the ‘Stamp Act’ and ideally registered with the Registrar of Firms.

Registration of Partnership Deed:

All the rights and responsibilities of each member are documented ina a document known as Partnership Deed. This deed can be oral or written, however, an oral agreement is of no use when the firm has to deal with the tax. Few essential characteristics of partnership deed area:

  • The name of the firm.
  • Name and addresses of the partners.
  • Nature of the business.
  • The term or duration of the partnership.
  • The amount of capital to be contributed by each partner.
  • The drawings that can be made by each partner.
  • The interest to be allowed on capital and charged on drawings.
  • Rights of partners.
  • Duties of partners.
  • Remuneration to partners.
  • The method used for calculating goodwill.
  • Profit and loss sharing ratio

The sections of partnership deed can be modified with the accord of all the partners. The deed must be appropriately drafted and outlined as per the provisions of the ‘Stamp Act’ and ideally registered with the Registrar of Firms.

Quick Link: Nature of Partnership

Partnership Deed Contents

While making partnership deed all the provisions and the legal points of the partnership deed are included. This deed also includes basic guidelines for future projects and can be used as evidence at times of conflict or legal procedures. For a general partnership deed below mentioned information should be included.

  • The Partnership Firm name accepted by all the partners should be mentioned. The name should not have titles like “company” or “private company”
  • Business nature should be mentioned
  • The origin date of the business
  • Headquarters and branches address
  • Duration of Partnership (if applicable)
  • Partner’s contribution to the capital, Profit sharing ratio, and Salary to be mentioned
  • Interest on contribution and the Interest. Retirement or suspension terms and conditions of the retirement or expulsion of a partner
  • Preparation of the business’s accounts and the terms for internal and legal audit
  • Procedure for dissolution of a firm and guidelines for resolving any conflicts and agreement method to follow

You might also want to know: Different modes of reconstitution of Partnership Firm

Importance of partnership deed

 Few are the important advantages of the well-drafted deed:

  • It controls and monitors the rights, responsibilities, and liabilities of all the partners
  • Avoids dispute between the partners
  • Avoids confusion on profit and loss distribution ratio among the partners
  • Individual partner’s responsibilities are mentioned clearly
  • Partnership deed also defines a remuneration or salary of the partners and working partners. But, interest is paid to each partner who has invested capital in the business.

Do you know? The importance of the Partnership Agreement

The above mentioned is the concept that is explained in detail about Partnership Deed for the class 12 students. To know more, stay tuned to BYJU’S.

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