Partnership Deed

A partnership is a distinct business wherein the partners collaborate to accomplish project goals. Because of this characteristic of partnerships, partners are open to negotiating the conditions of their connection with one another. Their records to document their connection to the business are known as partnership deeds.

A partnership is a type of business in which two or more individuals enter into a formal agreement. They acknowledge to be co-owners, share the responsibilities of running a business and split the profits or losses generated by the business. These characteristics of partnerships are recorded in a document known as the partnership deed. 

Partnership Deed

A partnership deed is a contractual relationship agreement between the firm’s partners that outlines the terms of the agreement of the partnership. A partnership deed’s purpose is to share a complete sense of each partner’s role, guaranteeing that the firm’s plan is successful.

• There is a result of the partners’ agreement
• The agreement can be either written or verbal
• The Partnership Act makes no requirement that the agreement is in writing
• The document containing the deal’s conditions is referred to as the ‘Partnership Deed’ wherever it is a written document
• A partnership agreement includes information about all of the factors that influence the relationship between the partners
• The information includes the objective of trading activities, each partner’s contribution, the proportion in which the stakeholders’ gains and losses will split and the advantage and privilege of partners to interest on the loan and capital

Contents of Partnership Deed

There is no specific format for drafting a partnership deed; a typical deed includes the clauses listed below. The contents of the partnership deed are:

• The firm’s name
• All the partners’ names and contact information
• Date of the firm’s inception 
• Length of firm’s existence
• Each partner contributed capital
• The ratio of profit/loss sharing
• Partners’ ratio entitled to capital interest
• The interest proportion permitted on investment and levied on drawings
• Partners’ rights
• Partners’ responsibilities    
• Partner remuneration
• The method of goodwill calculation
• Profit and loss distribution
• The technique for admitting or retiring a partner
• Accounts preparatory work for a company
• Mode of payment with the executors of a deceased partner
• The procedure to be followed in the event of disagreement between partners

Rules to be followed in the Absence of a Partnership Deed

If partners do not sign a partnership deed and its contents, the mentioned rules will apply:

• Profits and losses will be distributed evenly by the partners
• Partners will not draw a salary
• There will be no payment of interest on capital
• Drawings will not be subject to interest charges
• As per partners’ requirements, they will receive a 6% annual interest rate on loans to the firm

Significance of a Partnership Agreement

A few significant benefits of a well-drafted partnership deed and its contents are as follows:

• It controls and coordinates all partners’ privileges, obligations, liabilities, rights and responsibilities
• It precludes disagreements between partners
• It maintains transparency about the contracting partners’ profit and loss distribution ratio
• It states the roles and responsibilities of every individual partner
• The partnership agreement also specifies the compensation or remuneration of the partners and working partners
• As per partnership agreements, every partner invested in the business receives interest

Registration of a Partnership Firm

The following documents are required while registering a partnership firm:

• Original, certified legal document of the partnership deed
• Documents of every contracting partner (PAN card details and Aadhaar copies or driving licence)
• Address evidence of the company – rental agreement and utility bills will be considered
• Some of the accepted utility bills include gas consumption bills, communicating expenses bills or electricity usage bills
• All the bills should be related to the address of the firm
• GST registration documents
• A specimen of an affidavit declaring that all of the data and documentation in the partnership deed are correct
• Form 1 is an application; this is required during partnership registration

Conclusion

In the above notes, we understand the concept of the contents of partnership deeds. We have learned about the meaning of partnership, rules applied during the absence of partnership deeds, the significance of a partnership agreement and documents required while registering a partnership firm. 

A partnership deed is a formal written document containing a memorandum of understanding between individuals who plan to do business together and share profits and losses. It is also recognised as a partnership agreement. It aids in the regulatory oversight of the partners’ liabilities, privileges and responsibilities. It aims to alleviate misconceptions among partners by highlighting all of the terms of service ahead of time.