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,
Importance of a Partnership Deed
- It helps partners to define the terms of their relationship.
- It regulates the nature of business and liabilities, rights and duties of all partners.
- It helps to avoid misunderstandings between the partners since all of the terms and conditions of the partnership are specified in the deed.
- In the case of a dispute amongst the partners, it will be settled as per the terms of the partnership deed.
- There will be no confusion between the partners regarding the profit and loss sharing ratio amongst them.
- It mentions the role of each individual partner.
- It contains the remuneration that is to be paid to partners, thereby avoiding any dispute or confusion.
- It ensure smooth functioning of the firm as the terms and liabilities between partners are in a written form.
Types of Partnership Deeds
- General Partnership Deed: The general partnership deed contains the terms and conditions of a general partnership, where each partner shares equal responsibility for the management of the firm business and are jointly liable for debts or obligations.
- Limited Partnership Deed: The limited partnership deed establishes a limited partnership, which includes general and limited partners. The general partners have unlimited liability for the debts of the partnership firm, while the limited partners have limited liability and do not participate actively in the management of the business.
Contents of a Partnership Deed
The partnership deed contains the following details:
- Name of the firm
The partners of the firm should decide the firm’s name which adheres to the provisions of the Partnership Act. The firm name is the name under which the business is conducted.
- Details of the partners
The deed should include details of all the partners, such as their names, addresses, contact number, designation, and other particulars.
- Business of the firm
The deed should mention the business that the firm undertakes. It may be dealing with producing goods or rendering services.
- Duration of firm
The deed should mention the duration of the partnership firm, i.e. if the firm is constituted for a limited period, for a specific project or for an unlimited period.
- Place of business
The deed should contain the principal place of business where it carries on the partnership business. It should also mention the names of any other places where it conducts business.
- Capital contribution
Each partner will contribute an amount of capital to the firm. The entire capital of the firm and the share contributed by each partner are to be mentioned in the deed.
- Sharing of profit/loss
The ratio of sharing profits and losses of the firm amongst partners should be noted in the deed. It can be shared equally amongst all partners, or according to the capital contribution ratio or any other agreed ratio.
- Salary and commission
The details of the salary and commission payable to partners should be mentioned in the deed. The salary and commission can be paid to the partners based on their role, capabilities or any other capacity.
- Partner’s drawings
The drawings from the firm allowed to each partner and interest to be paid to the firm on such drawings, if any should be mentioned in the deed.
- Partner’s loan
The deed should mention whether the business can borrow loans, the interest rate of loans, properties to be pledged, etc. It can also mention if a partner of the firm can borrow loans from the business or not.
- Duties and obligations of partners
The rights, duties and obligations of all the partners of the firm should be mentioned in the deed to avoid future disputes.
- Admission, death and retirement of partners
The deed should mention the date of admission of the partner, the regulations governing the admission of a new partner, resignation, or changes after the death of a partner of the firm.
- Accounts and audit
The deed should contain details about the audit procedure of the firm. It should mention the details of how the partnership accounts are to be prepared and maintained.
Documents Required for Partnership Deed Registration
- PAN card of all the partners.
- Address proof of all the partners, such as voter ID, Aadhar card, driving licence, etc.
- Address proof of the firm
Partnership Deed Registration
The partnership deed is registered under the Indian Registration Act, 1908. It must be printed on non-judicial stamp paper with a value of Rs.200 or more based on the capital of the partnership firm. It has to be signed by all the partners and each partner should have a copy of the partnership deed.
After the deed is signed by the partners, it must be registered with the Sub-Registrar/ Registrar Office of the jurisdiction where the partnership firm is located. The stamp duty for registering the partnership deed varies from state to state. The respective states’ Stamp Act prescribes the stamp duty to be paid to the Sub-Registrar at the time of registration. The notarization of the partnership deed is required along with its registration. The registration of the partnership deed makes it legally valid.
FAQs
Is a partnership deed required for partnership firm registration?
Yes. A true copy of the deed of a partnership must be filed with the Registrar of Firms to get the partnership firm registered. It is an essential document that is to be submitted to the Registrar of Firms.
Does a partnership deed need to be notarised?
Yes, notarisation of the partnership deed is required along with its registration. Notarisation of the partnership deed makes the agreement between partners legal which can be defended in the court of law if any conflicts arise between them. All partners should notarise the partnership deed by signing the deed in front of the public notary.