A partnership is a kind of business where a formal agreement between two or more people is made. They agree to be co-owners, distribute responsibilities for running an organisation and share the income or losses that the business generates. These features of partnerships are documented in a document which is known as partnership deed.
What is a Partnership Deed?
Partnership deed is a partnership agreement between the partners of the firm which outlines the terms and conditions of the partnership between the partners. The purpose of a partnership deed is to provide clear understanding of the roles of each partner, which ensures smooth running of the operations of the firm.
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 usually comprises the attributes about all the characteristics influencing the association between the partners counting the aim of trade, the contribution of capital by each 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.
Registration of Partnership Deed:
All the rights and responsibilities of each member are recorded in a document known as a Partnership Deed. This deed can be oral or written; however, an oral agreement is of no use when the firm has to deal with tax. A few essential characteristics of a partnership deed are:
- 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
Quick Link: Nature of Partnership
Partnership Deed Contents
While making a 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, the below mentioned information should be included.
- Name of the firm as determined by all partners.
- Name and details of all the partners of the firm.
- The date on which business commenced.
- Firm’s existence duration.
- Amount of capital contributed by each partner.
- Profit sharing ratio between the partners.
- Duties, obligations and power of each partner of the firm.
- The salary and commission if applicable that is payable to partners.
- The process of admission or retirement of a partner.
- The method used for calculating goodwill.
- The procedure that must be followed in cases of dispute arising between partners.
- Procedure for cases where a partner becomes insolvent.
- Procedure for settlement of accounts in the event of dissolution of a firm.
You might also want to know: Different modes of reconstitution of Partnership Firm
Importance of partnership deed
A few important advantages of a well-drafted deed are listed:
- 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. However, interest is paid to each partner who has invested capital in the business.
Also Check: The importance of the Partnership Agreement
The above mentioned concept about Partnership Deed is explained in detail for Class 12 students. To know more, stay tuned to BYJU’S.
Frequently Asked Questions on Partnership Deed
What is called a partnership deed?
Partnership deed is a written legal document that contains an agreement made between two individuals who have the intention of doing business with each other and share profits and losses. It is also called a partnership agreement.
What documents are required for registration of a partnership firm?
Documents required for registration of a partnership firm are:
- Certified original copy of Partnership deed
- Partner’s documents ( PAN Card and Aadhar or Driving License)
- Address proof of the firm ( rent agreement and utility bills ( gas, landline or electricity)
- GST registration
- Specimen of an affidavit certifying all the details mentioned in the partnership deed and documents are correct.
- Application for registration of partnership i.e Form 1
How do you write a partnership deed?
Partnership deed is written or created with the following basic informations:
- Name and address of the firm as well as all the partners.
- Nature of business to be carried out by the firm.
- Date of commencement of business.
- Duration of partnership (whether for a fixed period/project)
- Capital contribution by each partner.
- Profit sharing ratio among the partners.
What are the 2 advantages of partnership deed?
The following are two advantages of the partnership deed
- It helps in regulating the liabilities, rights and duties of the partners.
- It helps in avoiding misunderstandings between the partners by mentioning all the terms and conditions beforehand.
What are 3 characteristics of a partnership?
The most important characteristics of a partnership are:
- Contractual relationship
- Two or more individuals
- Sharing of profit and loss