A partnership deed under the partnership act 1932 is a legal and written document that contains an agreement between two or more persons, who have a mutual intention to carry on business as partners and share profits and losses. A partnership agreement may be written or oral, but, According to the Partnership Act, there is no need that the agreement should be written. But when the agreement is in written format, it is called a partnership deed.
A partnership is a popular organization to start a fresh business. The Partnership agreement binds the parties in Partnership to start the business by taking equal profit and loss.
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What is Partnership Deed?
A partnership deed means a written partnership agreement duly signed by two or more parties to bind them in the relationship to carry on the business mutually. It gives the terms and conditions to the partners to work accordingly. It ensures the smooth running of the partnership firm’s operations. The partners can change the terms and conditions of the partnership deed mutually whenever they need.
Partnership Deed contents
A partnership deed template contains different clauses which should be present in the agreement at the time of the drafting of the partnership deed agreement:
- Name of the partnership firm: the clause will define the name of which the partnership firm is registered under the Partnership act.
- Business of the partnership firm: full details about the business owned by the company.
- Date of establishment: The exact date on which the partnership firm was established.
- Name and full address of partners: Full details of every partner of the firm with name and address. If the firm adds new partners by mutual consent, the details of the new partner must be added to the deed.
- Duration of the partnership firm: it contains the duration period or expiry date of the firm. A firm that is continuously working even after the expiry of the firm, is called partnership at will.
- Details of capital contribution of every partner: every transaction details of capital contribution given by all partners.
- Important guidelines for the transaction from firm Bank accounts: The partners are allowed to deposit and credit the money into the bank account owned by the firm. But the partnership deed gives some important guidelines related to the bank account. The partner must obey these guidelines while using the firm account for transactions.
- Profit and loss sharing ratio for each partner: In some types of partnership firm, every partner get a different profit and sharing ratio. This clause provides the exact information about the ratio for profit and loss for each partner.
- Rules for the settlement of dispute: This clause adds some rules to solve the dispute arising during the agreement between partners. The deed can give the guideline to solve the dispute with the help of arbitration in any other way.
- The interest rate of loan and capital: The clause contains information about the interest rate which will be applied to the capital of the firm.
- Rights of each partner: all the rights of partners. The rights will be different for every partner depending upon the type of partner in the partnership
- Duties of each partner: all necessary duties and liabilities of the partners.
- Rules for the uncertain event: the partnership deed provides the rules if a certain or uncertain event occurs. For example, the death or retirement of a partner.
- Procedure for settlement: This clause provides the rules and procedure for settlement at the time of dissolution of partnership firm
- Any other rules to run the business
These are some general clauses. There can be another clause that can be added to the partnership firm according to the comfort and need of partners.
Importance of Partnership deed
Significance of partnership deed for the formation of a partnership firm similar to a memorandum of association for formation of a company. It plays a major role in a partnership firm to do many acts like:
- If controls the rights and liabilities of the partners
- Useful to avoid any dispute between the partners
- Helps to solve the confusion on profit and loss sharing
- It defines the salary of the working partners
Partnership deed rules
The partnership deed is formed based on some factors which are:
- The deed can be considered as a written contract between two or more parties or businesses to divide the profit equally. The deed will bind all partners.
- There must be at least two competent parties for partnership firm
- Every partner must have a mutual understanding of the business of the firm
- The ratios of the profit and loss must be decided before entering into business
- Every person must capable to maintain the relationship of principal and agent because every partner shall be liable for the mistake of another partner.
Rules in the absence of a Partnership Deed
- The partners will share the profit and loss incurred by the business equally
- Partners are not entitled to interest on the capital of business
- No partner will get a salary for extra work done by him for the firm
- The interest will not charge on the partner’s drawings
- The partner will get a 6% P.A. interest rate on loans to the firm
- Every partner of the firm shall have the right to work for business
- No new partner shall be added to the partnership without the mutual and free consent of all the partners
- Every partner can check the bank details and other documents related to the partnership firm
F&Q related to the Partnership deed
What is a partnership deed between two partners?
It is a written agreement between two parties who has the capacity to contract and willing to start a business together to gain profit. The partnership deed helps the partners to divide the profit and loss equally.
What are the advantages of a partnership deed?
There are many advantages of partnership, like:
- It helps to understand the working of the firm
- It contains the rules and regulations for the partners which bind them to work according to rules.
- The deed helps to avoid misunderstanding between partners
- It provides the necessary details related to the sharing of profit and loss.
- It avoids disputes between partners by written guidelines.
Can I use the partnership deed as evidence?
A partnership deed under the partnership act 1932 is a legal and written document that contains an agreement between two or more persons, who have a mutual intention to carry on business as partners and share profits and losses. It binds all the partners of the partnership firm to perform the relationship of principal and agent.